Silvergate Capital Corp. discontinued the payments network that has served as a vital hub for investors in the cryptocurrency industry, days after the firm raised questions about its own viability.
(Bloomberg) — Silvergate Capital Corp. discontinued the payments network that has served as a vital hub for investors in the cryptocurrency industry, days after the firm raised questions about its own viability.
“Effective immediately Silvergate Bank has made a risk-based decision to discontinue the Silvergate Exchange Network,” the firm said Friday on its website. “All other deposit-related services remain operational.”
The company’s payments platform was its flagship offering. Silvergate has called SEN “the heart” of its group of services for crypto clients. The system offered customers the ability to move cash to each other around the clock, with the slogan: “Goodbye, regular banking hours. Hello, 24/7.”
“This is a very bad sign. By waiting after the close of business to announce this, now none of the money can leave,” J. Austin Campbell, an adjunct professor of Columbia Business School, said in a phone interview after Silvergate’s announcement. “The good news is a lot of crypto people have already cut relationships with Silvergate and moved away from them — it’s less catastrophic than it could be.”
Silvergate said in a Wednesday filing it may have to evaluate its viability after suffering a $1 billion loss at the end of the fourth quarter and further losses in January and February. Clients have moved to distance themselves from the bank amid mounting uncertainty, advising customers to direct funds elsewhere while assuring them their funds are safe.
The move comes after banking regulators issued multiple comments warning financial institutions they supervise of the dangers of exposure to crypto, including volatility.
“This is an interesting event for the crypto industry as SI was the highest regulated and most transparent counter-party in the institutional trading market,” KBW analysts led by Michael Perito said in a note this week prior to the bank’s announcement, “bringing into question what the banking rails of crypto could look like in the future.”
(Updates with quote, FDIC, SEN description starting in third paragraph.)
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