When FTX declared bankruptcy, it triggered a withdrawal in cryptocurrencies. Silvergate Capital (SI) shares plunged by over 40% when it announced a headcount reduction of 40% and an impairment charge.
SI stock, which once traded at over $200 in 2021, closed at $12.24. The stock could trade in the single digits when investors scrutinize the company’s prospects.
Silvergate took a $196 million impairment charge because customers withdrew deposits in the fourth quarter. It needed to start using its wholesale funding to offset the impact of those withdrawals. In addition, it needed to sell debt security to sustain its liquid balance sheet.
Silvergate’s lower deposit levels are a red flag for crypto exchanges. Customers are no longer willing to keep their funds there. They might store their holdings in cold storage instead. Since this also carries risks and is inconvenient, customers might liquidate their crypto.
Their conversion of crypto to currency will pressure platforms. For example, bears are betting against Coinbase (COIN) with a 21.91% short float. They are betting that executives rewarded themselves with too much in compensation worth billions. Revenue from the business is shrinking and losses are mounting.
Crypto investors should watch prices closely. Be ready to reduce positions if crypto prices resume their fall.
