By Geoffrey Smith
Investing.com -- Cryptocurrencies and stocks of companies active in the sector were still under pressure at the start of the week, as problems at Silvergate (NYSE:SI) and a steady drip feed of negative regulatory news kept the asset class on edge.
Crypto exchanges have lined up in recent days to minimize their dealings with Silvergate, which is facing severe liquidity and solvency problems as a result of retail investors pulling money out of crypto. Client demand for fiat money has forced Silvergate to sell its large portfolio of securities at a steep loss, wiping out a large part of its capital.
Silvergate said late on Friday it has discontinued the flagship product that allowed clients to move dollars in and out of its system on a 24/7 basis, effectively cutting off one of its largest revenue streams. Many crypto companies, including Paxos, Gemini, and Crypto.com, had said they would stop allowing payments through the so-called Silvergate Exchange Network (SEN) last week, immediately after the bank warned that it may not be able to survive as a going concern.
Silvergate had run into trouble late last year when the implosion of FTX prompted a mass flight from cryptocurrencies. Since then, U.S. regulators in particular have increased their scrutiny of the remaining crypto exchanges, leading to a succession of negative press articles hinting that many will find it difficult to continue operating in the U.S.
At the weekend, The Wall Street Journal reported that the links between Binance's notionally segregated U.S. operations were, in fact, deeply intertwined with its offshore business, exposing it to potentially severe regulatory risk. The company's president Patrick Hillmann has already said he expects to have to pay to settle investigations into Binance's historical activity in the U.S.
There were also fresh revelations around the governance of Tether, the world's biggest stablecoin which acts as a key point of entry and exit between the fiat and cryptocurrency spaces.
The WSJ cited documents indicating that executives were aware of money laundering by related parties during a period of market stress in 2017 as the network fought to keep its access to the banking system. Tether responded - as usual - by dismissing the "stale allegations from long ago" as "more FUD" (fear, uncertainty, and doubt), and called the article "wholly inaccurate and misleading."
By 09:20 ET (14:20 GMT), Bitcoin was down 0.4% at $22,423, while Ethereum was down 0.2% at $1,570. Silvergate stock was down 8.6% after the SEN news, which led Wedbush to downgrade the highly speculative stock to sell again, based on liquidation value of $5 a share, and an assumption that only 80% of its value will be recovered under liquidation.
Shares in MicroStrategy (NASDAQ:MSTR), which has a loan repayable to Silvergate in 2025, were largely unaffected.