Silvergate shares experienced a significant decline of nearly 60% on Thursday due to both business partners and investors leaving abruptly to avoid financial instability. The drop was the largest ever seen for Silvergate. 

On Wednesday, Silvergate announced that it was unable to submit its annual report on time to the US Securities and Exchange Commission (SEC).

As a result, three analysts downgraded their ratings of the stock, with one removing their price target altogether because of the significant level of uncertainty surrounding the company. 

JPMorgan downgraded Silvergate from “neutral” to “underweight” after the company announced it was assessing its ability to continue operating as a going concern.

Canaccord Genuity Group downgraded the bank to “hold,” while Compass Point Research & Trading LLC downgraded it to “neutral.”

The crypto market has been impacted by the aftermath of the FTX collapse, and Silvergate has been directly affected since the bank had approximately $1 billion in deposits from the now-defunct exchange when it collapsed. 

Additionally, several other crypto firms, including Galaxy Digital, Coinbase, and Paxos Trust, have decided to stop accepting or initiating payments through Silvergate.

This exodus poses a major risk to the bank’s primary source of deposits and its role as a platform for crypto participants to transfer money between one another.

“In light of recent developments and out of an abundance of caution, Coinbase is no longer accepting or initiating payments to or from Silvergate,” Coinbase said in a statement shared on Twitter. “Coinbase will be facilitating institutional client cash transactions with our other banking partners.”

At Coinbase all client funds continue to be safe, accessible & available.

In light of recent developments & out of an abundance of caution, Coinbase is no longer accepting or initiating payments to or from Silvergate.

— Coinbase (@coinbase) March 2, 2023

More than $11 billion in assets are held by the bank, all of which are federally insured, but the firm’s precarious financial position will fuel a discussion among U.S. politicians and regulators over whether or not banks can handle the risks associated with digital assets.

The SEC has been working on clarifying its stance on the classification of cryptocurrencies as securities. The agency has taken action against several initial coin offerings (ICOs) that it deemed to be unregistered securities offerings.

The Internal Revenue Service (IRS) has also been developing guidance on the taxation of cryptocurrencies.

The agency previously released guidelines stating that virtual currencies are treated as property for tax purposes, meaning that they are subject to capital gains tax.

The Financial Crimes Enforcement Network (FinCEN) has proposed new rules that would require crypto exchanges to collect more information about their customers and report certain transactions to the government.

The proposal has been met with some resistance from the crypto industry, which argues that the rules could stifle innovation and put too much burden on businesses.

-Featured image from Coincu News

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