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Microstrategy recently took to Twitter to reassure investors – and the market as a whole – of its supposedly “minimal exposure” to Silvergate, a struggling crypto bank that has since been the subject of online discourse after news of a later-than-usual 10-K filing sends shockwaves to its stocks and the crypto market.
According to the tweet, the company explained to its 175,000 followers that even if Silvergate becomes insolvent, the $205 million loan by Microstrategy won’t be accelerated to meet the bank’s financial needs. This, however, was not taken lightly by the market with major cryptos tumbling by 5% in the daily time frame.
We have a loan from Silvergate not due until Q1 ‘25. There are mkt concerns re SI’s fin. condition. For anyone wondering, the loan wouldn’t accelerate b/c of SI insolvency or bankruptcy. Our BTC collateral isn’t custodied w/ SI & we have no other financial relationship w/ SI.
— MicroStrategy (@MicroStrategy) March 2, 2023
The Silvergate Quake In A Nutshell
The entire Silvergate debacle started when FTX, one of the bank’s biggest partners, collapsed leaving Silvergate and the whole crypto market in tailspin. Since then, the company has been on some sort of life-support, with Q4 earnings metrics dropping substantially.
As a result, the company’s delayed 10-K filing prompted its partners to distance themselves to mitigate possible losses. Industry giants like Coinbase, Circle, Paxos, Galaxy, and CBOE recently released statements regarding their respective exposures. Circle, developer of the USDC stablecoin, stated that the company is “unwinding certain services with them [Silvergate] and notifying customers.”
Source: Silvergate 4Q22 Earnings Report
This certainly sparked concerns about another cataclysmic event for crypto with some going as far as calling the probable bankruptcy of Silvergate to be the “second FTX”.
Image: Getty Images
MicroStrategy: Potential Spillovers Ahead
Since the bank has been running on deficit ever since the $8.1 billion bank run it suffered last year, the company received loans amounting to $3.6 billion from the Federal Home Loan Banks which is a system that originally intended to support housing finance.
Silvergate is essentially a regulated bank – which has full federal protection – which just positioned itself as a gateway to the crypto market. With the company’s relationship with the traditional finance space, it is safe to say that Silvergate going belly up would make a small dent in the financial system.
Crypto total market cap at $998 billion on the weekend chart | Chart: TradingView.com
It also means a stronger response by regulatory bodies on crypto companies. Last month, the US Department of Justice disclosed that they plan to investigate Silvergate’s relationship to the now defunct exchange FTX.
Silvergate’s fate is still unclear until now, but the current situation sticks out like a sore thumb as the memory of last year’s pain is still fresh in the minds of investors.
How this may affect the future of digital assets is still up for speculation.
-Featured image from Bitcoin Wisdom