By Geoffrey Smith
Investing.com -- The world's largest crypto exchange Binance said it has no exposure to Silvergate Capital (NYSE:SI), hoping to calm the nerves of clients rattled by the bank's collapse on Wednesday.
"Binance do not have asset losses at Silvergate," Binance founder and CEO Changpeng Zhao tweeted soon after Silvergate said it will wind down its operations.
Silvergate offered traditional banking services to several big crypto exchanges. It had suffered catastrophic losses on its portfolio of bonds when the mass flight from crypto as an asset class in the wake of FTX's collapse caused Silvergate's crypto clients to pull their funds from the bank to meet redemption requests from their own customers.
Analysts at Cowen noted that it will be hard for the remaining U.S.-based crypto exchanges to replace the services offered by Silvergate. Large banks will likely shun the regulatory risk, while small ones may shy away from the liquidity risk that ruined Silvergate.
The news of its decision to liquidate dealt a fresh blow to cryptocurrency prices, pushing Bitcoin down to a one-month low before recovering slightly to be at $21,651, down 1.3%, by 04:15 ET (09:15 GMT). Shares in crypto-focused companies such as Coinbase (NASDAQ:COIN), Riot Platforms (NASDAQ:RIOT), and MicroStrategy (NASDAQ:MSTR) all fell in premarket trading too.
Customers also continued to pull their money from Binance USD, the native token used to clear much of the trading activity on the platform. Its outstanding market capitalization has fallen by half to just over $8 billion in the last month and is down by two-thirds since FTX's collapse.
Binance's U.S. operations, like many others, had banked with Silvergate in the past. However, it appeared to have dialed back its relationship over time. Reuters reported last month that Binance.US had moved more than $400 million from Silvergate to other accounts over the first three months of 2021. The report was notable for its claim that the asset transfer had been instigated by Binance's offshore operations, something that would undermine Zhao's repeated claims that Binance.US operates independently from its unregulated affiliate.
Reuters cited a message from Catherine Coley, who was then Binance.US's CEO, saying that the transfers had taken place without her knowledge, calling them "unexpected" and saying "no one mentioned them."
It also said a person familiar with the matter as saying that Binance finance executive Susan Li had access to the Binance.US Silvergate account, and noted that a 2021 Binance.US document identified Silvergate as a payment channel controlled at the time by Binance.com.
Binance told Reuters the information was "outdated" but didn't elaborate.