Silvergate Bankrupt & Impact On Cryptos

By Bfab | Good vibes | 6 Mar 2023

As Silvergate delayed its financial report to the SEC, the cryptosphere starts to think they will soon go bankrupt. Therefore, we may wonder which cryptos could be impacted by this bankrupt. A short answer would be: all of them, including Bitcoin (BTC), Ethereum (ETH) and stablecoins (USDC, USDT). However, the impact goes beyond cryptos, since it could affect several companies which have been using Silvergate products:

Silvergate Bank is a US-based bank that specializes in providing financial services to cryptocurrency exchanges and institutional investors. The bank has developed a proprietary payments network called the Silvergate Exchange Network (SEN) that facilitates the transfer of fiat currency between its clients.
While Silvergate Bank does not offer cryptocurrency trading services, it has established partnerships with several cryptocurrency exchanges and platforms that use its SEN network for fiat currency transfers. Some of the cryptocurrency exchanges that are linked to Silvergate Bank and use its SEN network include Coinbase, Kraken, Bitstamp, Gemini, Binance.US.
It is important to note that being linked to Silvergate Bank does not necessarily mean that a cryptocurrency is directly associated with the bank. Rather, it means that the cryptocurrency exchange or platform has partnered with Silvergate Bank to facilitate fiat currency transfers.
Some of the cryptocurrencies that are known to have a relationship with Silvergate include: Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), XRP (XRP), Bitcoin Cash (BCH), USD Coin (USDC), Paxos Standard (PAX), Gemini Dollar (GUSD).
Silvergate products also include the SEN Leverage product, which allows proprietary traders to use Bitcoin as collateral for fiat loans that they can use to buy more Bitcoin. Companies like Coinbase and Microstrategy have used the SEN Leverage product to get USD loans ($205 million for Microstrategy). The collateralized Bitcoin is not held by Silvergate but by their client, e.g., Coinbase Custody, on a cold storage wallet.
Even if Silvergate goes bankrupt, the debt will be transfered to another bank (further to FDIC decision) and will still need to be reimbursed, with the same timeline, by Silvergate client.

Therefore, if Silvergate goes bankrupt, it will become more challenging for companies like Coinbase or Microstrategy to get some USD loans by using Bitcoin as collateral through the banks, what will increase the selling pressure on Bitcoin in the short term but will also urge these companies to use DeFi (Decentralized Finance) to get loans, e.g., by using Ethereum layer-2's like Optimism through protocols like Synthetix (SNX) or through the BASE network.

Disclaimer: this article does not contain any financial advice. The information is provided for general informational and educational purposes only.

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