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Wall Street Breakfast: Another Crypto Calamity

Mar. 09, 2023 7:15 AM ET86 Comments
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Another crypto calamity

Silvergate Capital (NYSE:SI) plans to wind down operations and voluntarily liquidate billions of dollars in assets of Silvergate Bank, including the full repayment of all deposits. Shares of SI continued their downward descent on the news, plunging nearly 46% premarket to $2.64. Silvergate is also considering how to best resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets.

Backdrop: Silvergate Bank launched as a savings and loan association in the late 1980s, reorganized into a community bank in the mid-90s, and pivoted into cryptocurrencies a decade ago. That's when it struck gold. At the time, no other mainstream banks were even thinking about crypto, and its assets continued to grow rapidly, especially after the launch of the "Silvergate Exchange Network." The instant payment platform allowed clients like major crypto exchanges and institutional investors to send fiat currencies like the dollar to other Silvergate accounts at any time, even when traditional banks were closed on nights and weekends.

The hype surrounding crypto prompted Silvergate to go public in November 2019 at a share price of $13, and within two years, the price was up over 1,500% to reach an all-time high of $219. In 2021, Silvergate also attempted to launch its own stablecoin by acquiring Meta's (META) Diem technology, but things were starting to sour on the industry. The crypto winter set in, and after nearly a year of icy conditions, Silvergate was dealt a severe blow when its digital asset customers withdrew deposits in the wake of FTX's collapse.

Go deeper: Several SA authors were warning about the impending doom for months, especially given the exposure to Sam Bankman-Fried's short-lived crypto empire. Contributor BlackFish cited serious red flags in November, questioning customer deposit concentration and loan quality, while Lyster Analytics predicted an existential liquidity crisis after putting SI's balance sheet under the microscope. Later in January, Silvergate said it would streamline its product portfolio, cut headcount and reassess customer relationships, but it was not enough to stop the damage. The final red alert came last week when it discontinued the Silvergate Exchange Network and flagged its ability to continue as a going concern. (79 comments)

Newsom vs. Walgreens

DeSantis and Disney (DIS) are not the only game in town anymore. California Gov. Gavin Newsom has made good on his threat of "not doing business with @walgreens," pulling a $54M contract for specialty prescription drugs that was set to renew on May 1. "We're serious about not investing in companies that cave to the extremist agenda of the @GOP," Newsom tweeted, after Walgreens (WBA) said it would refrain from selling abortion pill mifepristone in 20 states due to potential legal consequences. Will the politics spill over into a corporate exodus, as activism takes hold in the Sunshine and Golden States? (37 comments)

Scripted betting

Reports suggest that World Wrestling Entertainment (WWE) is in discussions with state gambling regulators in Colorado and Michigan in an attempt to legalize wagering, even though its match outcomes are predetermined. It's reportedly working with accounting firm EY to secure match results so they won’t leak to the public (similar to how PwC deals with Oscar winners at the Academy Awards). One possible strategy would see wrestlers only clued in to whether they were winning or losing just before a match, but SA users aren't having any of it. "It isn't just the wrestlers. Production staff, producers, writers...they all have to know the results in advance of a big PPV event," commented Austin Newsom, while others likened the new scheme to insider trading. (13 comments)

War of words

Sino-U.S. tensions are on full display this week. Chinese Foreign Minister Qin Gang has warned Washington of "conflict and confrontation" if it failed to change course in relations with Beijing, while paramount leader Xi Jinping accused the U.S. of "all-round containment, encirclement and suppression that has brought unprecedented grave challenges to our nation's development." Firing back at the remarks, U.S. Director of National Intelligence Avril Haines said that China remains our "unparalleled priority," and could "leverage its dominant positions in key global supply chains to threaten and cut off foreign countries during a crisis." It comes after the Netherlands agreed to a U.S. request to impose export restrictions on China - limiting the powerful chips and deep lithography tools of Dutch company ASML (NASDAQ:ASML) - as a battle over silicon determines the technologies of the future (read how semiconductors play into the situation in Taiwan). (16 comments)

Today's Markets

In Asia, Japan +0.6%. Hong Kong -0.6%. China -0.2%. India -0.9%.
In Europe, at midday, London -0.8%. Paris -0.6%. Frankfurt -0.5%.
Futures at 6:30, Dow -0.2%. S&P -0.4%. Nasdaq -0.7%. Crude -0.1% to $76.62. Gold +0.1% to $1820.90. Bitcoin -1.6% to $21,644.
Ten-year Treasury Yield +2 bps to 4.00%

Today's Economic Calendar

7:30 Challenger Job-Cut Report
8:30 Initial Jobless Claims
10:30 EIA Natural Gas Inventory
4:30 PM Fed Balance Sheet

Companies reporting earnings today »

What else is happening...

WSB survey results: TikTok should be banned, but will it be outlawed?

Job openings fall less than expected, quit rate ticks down.

Norfolk Southern (NSC) CEO faces grilling at Senate Committee hearing.

JPMorgan (JPM) sues Jes Staley over ties to Jeffrey Epstein.

Credit Suisse (CS) considered sale of equities business in restructuring.

World's largest producer of renewable energy calls this type a 'bad bet.'

American Express (AXP) announced buyback, boosts dividend by 15%.

Focus on India: Apple (AAPL) said to be shaking up global sales biz.

WeWork (WE) reportedly in talks with investors to restructure debt.

Tesla (TSLA) under investigation for Model Y steering wheel issues.

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