Crypto stocks plummet after Silvergate decides to shut down

March 9 (Reuters) – Shares in crypto-focused companies fell on Thursday after Silvergate Capital Corp ( SI.N ) revealed plans to wind down operations and voluntarily liquidate, as the aftermath of FTX’s implosion last year reverberated through the industry.

Shares in Silvergate plunged more than 35% to $3.17, a day after hitting a record low, and have lost 64% since March 1 when the company reported continuing operational risks.

Analysts said a complete shutdown of the crypto lender could take one or two years depending on how quickly outstanding loans are repaid and assets are disposed of.

Silvergate’s latest move adds to a list of high-profile collapses among crypto market players since last year.

“We believe this decision was made, at least in part, to help reduce Silvergate Bank’s legal liability related to FTX’s bankruptcy,” Wedbush analysts wrote in a note.

Silvergate did not immediately respond to a request for comment on the analysts’ view.

Meanwhile, shorting Silvergate shares has proven profitable for bearish investors as shares have lost 95% of their value over the past 12 months and 72% so far this year.

Nearly 85% of the company’s free float is under short positions with short sellers making $241 million in year-to-date mark-to-market profit, according to research firm S3 Partners.

While Silvergate said the liquidation plan includes a full refund of all deposits, many in the crypto industry still wondered how the bank’s demise would affect other firms.

“As the situation continues to unfold, we will need to closely monitor whether exchanges can transition smoothly from Silvergate and whether Silvergate is truly adequately capitalized,” said Eric Chen, CEO and co-founder of Injective Labs, a company focused on decentralized finance.

Shares in peer Signature Bank ( SBNY.O ), which has veered away from crypto since late last year, fell more than 11%. The S&P 500 banking index (.SPXBK) fell nearly 6% Thursday.

In its second mid-quarter update this month, Signature said digital assets made up just 18.5% of total deposit balances.

Crypto exchange Coinbase Global ( COIN.O ), which cut ties with Silvergate last week, fell more than 7%. Miners Riot Blockchain (RIOT.O) fell more than 11% and Marathon Digital (MARA.O) fell 10%.

Bitcoin last traded at $20,754, near its lowest level since January, with analysts and investors saying the market impact of the news was limited as widely expected.

Reporting by Medha Singh and Niket Nishant in Bengaluru and Hannah Lang in Washington; Editing by Sriraj Kalluvila, Arun Koyyur and Nick Zieminski

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