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MicroStrategy, Marathon Digital Shares Fall Amid Crypto Bank Silvergate's Woes
Both companies were sizable borrowers from the lender, though Marathon late last year moved to pay down some of its debt.
By Aoyon Ashraf
Updated May 9, 2023, 4:05 a.m. Published Jan 5, 2023, 6:08 p.m.
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The stocks of business software company MicroStrategy (MSTR) and bitcoin miner Marathon Digital (MARA) both fell close to 5% on Thursday after their lender Silvergate Capital's (SI) shares plunged more than 40% amid large-scale layoffs and a nearly $200 million write-off related to acquisition of Facebook's former stablecoin project Diem.
The San-Diego-based crypto bank was a lender to both MicroStrategy and Marathon. Last March, entrepreneur Michael Saylor's software company said its subsidiary received a $205 million bitcoin-backed term loan from Silvergate. The loan had about a 6.20% annual interest rate as of Sept. 30 and is due on March 2025, according to a recent investor presentation.
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There were questions last year of whether MicroStrategy would get a margin call on those loans when the price of bitcoin (BTC) slumped to $21,000. Saylor, however, was quick to dismiss the concerns, saying that the "margin load is well managed."
Saylor resigned as MicroStrategy's CEO in August, and now serves as its executive chairman.
Read more: Revisiting MicroStrategy's Pain Points as Bitcoin Tumbles
Meanwhile, Marathon – which had borrowed roughly $100 million from Silvergate via a term loan and a revolving line of credit – said on Thursday it had paid off another $30 million of that revolver in December, wiping out the balance (the amount still outstanding under the term loan wasn't disclosed). The move freed up 3,615 bitcoins that had been pledged as collateral.
MicroStrategy's shares were down 4.6%, and Marathon's shares lower by 4.9% on Thursday, while the price of bitcoin was essentially flat on the day at $16,800.
Outside of the lending activities, Silvergate also has highflying crypto firms as corporate banking customers through its Silvergate Exchange Network (SEN) leverage program, which issues U.S. dollar loans using bitcoin as collateral. The now-defunct FTX, stablecoin issuer Circle and crypto trading platforms Coinbase (COIN), Paxos, Crypto.com and Kraken were all SEN clients, according to a recent investor presentation.
Such ties have raised questions on crypto Twitter about possible knock-on effects for the industry if Silvergate were to go under.
Amongst Silvergate's corporate banking customers, you can find the likes of Coinbase, Circle, Bitstamp, Kraken and Paxos. – Not good news for the crypto industry if Silvergate goes out of business. https://t.co/C3B64vmn90
— Arturo Portilla (@Arturo_P_A) January 5, 2023
The SEN has facilitated over $1 trillion in payments since its inception in 2017 and has over $1 billion in commitments, according to the investor presentation.
Coinbase's shares fell almost 10% on Thursday, partly due to a downgrade from Wall Street investment bank Cowen, which cited the lack of clarity on trading volume recovery following FTX's collapse.
Silvergate was deeply involved with FTX before its implosion. In December, the crypto bank issued a statement saying it was the “victim of FTX’s and Alameda Research’s apparent misuse of customer assets and other lapses of judgment.” Deposits by FTX made up nearly 10% of Silvergate’s $11.9 billion in deposits from digital-asset customers, the bank disclosed in November.
The bank also said on Thursday that it experienced an outflow of $8.1 billion in digital-asset deposits during the fourth quarter amid FTX's demise. To counter the outflows, Silvergate sold $5.2 billion of debt securities, incurring a loss of $718 million.
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