Coinbase terminates partnership with Silvergate Bank amidst investigation

Silvergate faces insolvency scare as Coinbase cuts ties and delays annual report.

Cryptocurrency exchange Coinbase has announced that it has ended its financial relationship with its banking partner for U.S. dollars, Silvergate Bank, due to an ongoing investigation.

“In light of recent developments & out of an abundance of caution, Coinbase is no longer accepting or initiating payments to or from Silvergate,” the digital currency trading platform said in a tweet, stating that it had limited financial exposure to the bank. The latest financial disclosure by the bank raised concerns about its financial stability. Coinbase plans to collaborate with other financial institutions to support its clients' cash transactions and has halted all payments to and from Silvergate.

At Coinbase all client funds continue to be safe, accessible & available.

In light of recent developments & out of an abundance of caution, Coinbase is no longer accepting or initiating payments to or from Silvergate.

— Coinbase (@coinbase) March 2, 2023

The crypto exchange's move to end its partnership with Silvergate coincides with the bank's efforts to recover from a liquidity crisis that arose due to the bankruptcy of FTX last year. As a result, Silvergate's customers withdrew billions of dollars in deposits. On Wednesday, the bank postponed its yearly report – clearing that it required an additional two weeks to finalize the report for the fiscal year 2022 – and announced the sale of additional debt securities, such as bonds and notes, to settle its debts for the year. The bank is assessing the consequences of these developments on its ability to maintain its operations in the long run.

Following Coinbase's announcement, Silvergate's shares fell by nearly 50% to $7.06 in early morning trading.   In response to the insolvency concerns, JP Morgan downgraded Silvergate Capital from "neutral" to "underweight." Meanwhile, Coinbase's shares declined by approximately 7% to $60.12. As per the Financial Industry Regulatory Authority, by the end of January, over 72% of the stock of Silvergate Capital was shorted.