Silvergate Capital (SI) shares fell Friday morning in a sign that FTX’s rapid unraveling continues to rattle investors.
On Thursday, Silvergate CEO Alan Lane tried to assuage investors that market volatility precipitated by FTX’s collapse would not affect the crypto banker’s business.
“Suffice it to say, whether deposits are up or down, we have the liquidity and the capital ratios to support the volatility,” said Lane at the Oppenheimer Blockchain & Digital Assets Summit.
But his message seemed to fall flat as the company’s stock price fell almost 10% on Friday. More broadly, shares of Silvergate Capital have nosedived 85% since last year’s crypto bull run.
Hours after Lane’s remarks, crypto prime brokerage FalconX announced it would not be using Silvergate SEN Leverage, which enables institutional investors to trade any asset on-platform with leverage collateralized by bitcoin or U.S. dollars, “out of an abundance of caution.” It will also not be using the crypto banker to make wire transfers.
Last Friday, Silvergate announced that it has no outstanding loans or investments to FTX and clarified that FTX is not a custodian for any of its bitcoin-collateralized SEN Leverage loans. FTX does have at least $1 billion in deposits with Silvergate, but the bank says that represents less than 10% of its total deposits from all digital asset customers.
Both institutional and retail investors have been on edge since FTX’s collapse as they attempt to anticipate the effects of a third market-disrupting contagion on the crypto market and the crypto industry at large. The first two contagions were precipitated by the Terra-Luna collapse, in May, and Three Arrow Capital’s implosion, in June, respectively.
Marc Cohodes, an early critic of FTX, says FTX’s deposits with Silvergate are still a sizable percentage of the banker’s overall deposit base. On Tuesday, Cohodes told Hedgeye that he’s shorting Silvergate, noting the size of FTX’s deposits with the bank is a huge red flag.