© Reuters
By Geoffrey Smith
Investing.com — The world’s largest cryptocurrency exchange, Binance, said it had no exposure to Silvergate Capital (NYSE:), hoping to calm the nerves of clients rattled by the collapse of the bank on Wednesday.
“Binance has no asset losses at Silvergate,” Binance Founder and CEO Changpeng Zhao tweeted shortly after Silvergate said it would cease operations.
Silvergate offered traditional banking services to several major cryptocurrency exchanges. She suffered catastrophic losses on her bond portfolio when the massive flight from cryptocurrencies as an asset class in the wake of FTX’s collapse caused Silvergate’s cryptocurrency clients to withdraw their funds from the bank to respond to redemption requests from their own customers.
Cowen analysts noted that it will be difficult for other US-based cryptocurrency exchanges to replace the services offered by Silvergate. Big banks will likely shun regulatory risk, while smaller ones may avoid the liquidity risk that ruined Silvergate.
The news of its decision to liquidate dealt another blow to cryptocurrency prices, pushing it to a one-month low, before recovering slightly. Shares of cryptocurrency-focused companies such as Coinbase (NASDAQ:), Riot Platforms (NASDAQ:) and MicroStrategy (NASDAQ:) also fell in pre-market trading.
Customers also continued to withdraw their money from , the native token used to clear much of the trading activity on the platform. Its outstanding market cap has halved to just over $8 billion in the past month and has shrunk by two-thirds since FTX’s collapse.
Binance’s US operations, like many others, have used Silvergate in the past. However, this relationship seems to have diminished over time. Reuters reported last month that Binance.US transferred more than $400 million from Silvergate to other accounts in the first three months of 2021. The report was notable for its claim that the asset transfer was instigated by Binance’s offshore operations, which would undermine Zhao’s repeated claims that Binance.US operates independently of its unregulated subsidiary.
Reuters quoted a post from Catherine Coley, then CEO of Binance.US, as saying the transfers had taken place without her knowledge, calling them “unexpected” and adding that “no one had spoken about them.”
He also reported that a person familiar with the matter said that Binance finance executive Susan Li had access to Binance.US’ Silvergate account, and that a Binance.US document from 2021 identified Silvergate as a payment channel controlled at the time by Binance.com.
Binance told Reuters that this information was “out of date”, but did not provide further details.