Crypto bank Silvergate ranks as the second most-shorted stock on Wall Street

Cryptocurrency bank Silvergate Capital Corp. is the second shortest stock in the US with over 72.5% of its shares sold. according to to the latest interest brief on 9 February.

The Financial Industry Regulatory Authority (FINRA) collects and publishes short interest-bearing positions in all equity securities twice a month. A short position means that investors and traders believe that the price of a security, such as a stock, will decline. A short seller profits from a decline in the price of a security.

At the time of writing, Silvergate (SI) shares down more than 87% in the last twelve months. Silvergate’s bearish sentiment stems from its recent earnings report and the legal battles the company is facing over its dealings with bankrupt firms FTX and Alameda Research.

On January 17, the bank announced a $1 billion net loss attributable to common shareholders in the fourth quarter of 2022. report from the US Securities and Exchange Commission (SEC), Silvergate experienced a significant outflow of deposits during this period, forcing the company to seek wholesale financing and sell debt securities to maintain liquidity.

Banks are under pressure from US authorities to sever ties with crypto firms

Silvergate reportedly borrowed $3.6 billion from the U.S. Federal Home Loan Banking System to cushion the effects of a sharp increase in withdrawals following the crash of cryptocurrency exchange FTX in November 2022.

The bank is facing investigations and lawsuits in the US for allegedly helping FTX with fraudulent activities, including lending and mixing user funds. The company has been accused of “facilitating the FTX investment fraud” and shareholders say Silvergate violated the Securities Act of 1934. The Department of Justice is currently investigating the bank’s role in FTX’s business.

According to Silvergate, Alameda opened a bank account in 2018, before the launch of FTX. The company claims it was conducting due diligence at the time and was monitoring the situation constantly.

Moody’s Investors Service recently responded to the situation with the bank by downgrading Silvergate Capital and its bank to junk with a negative outlook for both institutions.

Silvergate did not immediately respond to Cryptooshala’s request for comment.

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