Silvergate Capital (SI) capitulated on Thursday as the crypto bank announced late Wednesday that it would not be filing its annual report or 10-K for the year 2020 with the U.S. Securities and Exchange Commission (SEC) on time. The news sent its shares tumbling by more than 11% in after-hours trading.
The company, which specializes in providing banking services to cryptocurrency exchange clients, said in a statement that the delay was caused by “the efforts required to finalize certain information and disclosures” relating to the accounting treatment of its cryptocurrency custodial services. It added that the delay “does not relate to the financial or operational condition of the company.”
The announcement took investors by surprise and raised concerns about the company’s operations and potential legal challenges it may be facing. It also sparked fears of a potential crypto bank crackdown by regulators.
The delay in filing the annual report is a significant setback for Silvergate, which is listed on the New York Stock Exchange (NYSE) and is required by law to file financial reports with the SEC. The company’s shares have soared by more than 800% over the past year, reflecting the growing interest in cryptocurrencies and the increasing demand for banking services in the sector.
However, the delay could have wider implications for the cryptocurrency industry, as it highlights the challenges and uncertainties that banks and other financial institutions operating in the sector face in terms of regulatory oversight and compliance.
The crypto industry has been largely unregulated since its inception, but regulators around the world are now starting to take a closer look at the sector, amid concerns about money laundering, fraud, and other illegal activities. In the U.S., several bills have been introduced in Congress in recent months that aim to regulate cryptocurrencies, including the proposed “Eliminate Barriers to Innovation Act,” which seeks to create a regulatory framework for digital assets.
The delay in filing the annual report is likely to fuel these regulatory concerns, as it suggests that banks and other financial institutions operating in the sector are struggling to comply with existing regulations and disclose their accounting practices.
Moreover, the delay underscores the challenges that banks and other financial institutions face in terms of auditing and accounting for cryptocurrencies. As the crypto industry evolves and becomes more complex, banks and other financial institutions will need to invest in more specialized expertise and technology to ensure that they are accurately accounting for digital assets.
The delay in filing the annual report also raises serious questions about the company’s risk management practices and internal controls. Given the high-risk nature of the cryptocurrency sector, it is essential that banks and other financial institutions operating in the sector have robust risk management frameworks in place to mitigate the risks of fraud, money laundering, and other illegal activities.
In the case of Silvergate, the delay suggests that the company may not have adequate risk management systems in place, or that its internal controls may not be effective in identifying and mitigating potential risks.
The delay in filing the annual report and the subsequent sell-off in Silvergate’s shares is a timely reminder of the risks and uncertainties associated with investing in the cryptocurrency industry. While the sector offers significant potential for growth and innovation, it also presents significant legal, regulatory, and operational risks.
Investors and stakeholders need to be mindful of these risks and ensure that they are fully informed about the risks and rewards associated with investing in the sector. They also need to ensure that they are properly diversified and that they have adequate risk management systems in place to protect their investments.
In conclusion, the delay in filing the annual report is a setback for Silvergate and underscores the challenges and uncertainties facing banks and other financial institutions operating in the crypto sector. As the industry evolves, regulators, investors, and stakeholders need to work together to create a more transparent, secure, and compliant ecosystem for digital assets.
