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Silvergate Highlighted In New Short Report: ‘Potential Regulatory Infractions’ Not Fully Recognized By Market

A new short report is pointing out problems at Silvergate Capital Corp (NYSE:SI), a cryptocurrency-friendly bank that has seen its stock price fall in 2022.

What Happened: The cryptocurrency industry has fallen under pressure for regulation after the collapse and bankruptcy of the cryptocurrency platform FTX.

That impact could be felt by Silvergate Capital with the Bear Cave Report from Edwin Dorsey stating the stock could face further pressure.

“The Bear Cave believes Silvergate’s potential regulatory infractions, shrinking deposit base and diminishing credibility are not being fully recognized by the market,” the report reads.

The report highlighted Silvergate CEO Alan Lane's awareness of risks and shared his take in a 2019 podcast interview.

“The penalties are fines and they can be really severe. You can essentially put the entire bank at jeopardy,” Lane said at the time.

Allegations came out in August 2022 that Silvergate was linked to a money laundering operation, something covered in the short report.

Silvergate was also linked to FTX and Alameda Research, an investment company interlinked to FTX and may have used customer deposits.

YouTube channel Coffeezilla recently shared Silvergate was involved in wiring money to Alameda instead of FTX.

“I just accidentally labeled your money as my money,” the Coffeezilla host said of Bankman-Fried’s own admissions.

Related Link: Block Is The Most Shorted Crypto Stock, How Do Coinbase, MicroStrategy Compare? 

Why It’s Important: Companies that have been linked to FTX and Alameda Research have faced questions over potential losses and any role they could have played in the bankruptcy filings of both companies.

“Life as a crypto firm can be divided up into before Silvergate and after Silvergate — it’s hard to overstate how much it revolutionized banking for blockchain companies,” Bankman-Fried said in a quote that was used on the Silvergate website.

Silvergate is also linked to BlockFI, a cryptocurrency company that recently declared bankruptcy. Silvergate said it had minimal exposure to BlockFi, amounting to less than $20 million of its total deposits. The report questioned how much Silvergate had lost from deposits from BlockFi prior to the declaration.

The Bear Cave Report pointed to potential fines that could be levied on the company for the handling of money transfers that were involved in fraud or money laundering.

Silvergate went public in November 2019 at an IPO price of $12 and saw shares jump significantly since then, trading over $200 a share in November 2021 when cryptocurrencies such as Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) were hitting all-time highs.

Shares of Silvergate are now down 82% year-to-date in 2022 as the cryptocurrency market has faced huge setbacks and questions about its future.

Silvergate positioned itself to be tied to the cryptocurrency market, which made the stock a strong play in 2021, but now as the short report points out, it could put the company in the spotlight for different reasons in 2022.

SI Price Action: Silvergate shares are down 5.54% to $25.91 on Thursday afternoon at publication.

Read Next: FalconX Distances Itself From Silvergate But Receives $17M From Alameda 

Photo: LookerStudio via Shutterstock

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