Citadel Securities invests in beaten-down crypto bank Silvergate

abdelaziz Fathi

Ken Griffin’s Citadel Securities reported a 5.5% stake, or 1.73 million shares, in cryptocurrency-focused lender Silvergate Capital Corp as of December 31, according to a regulatory filing.

Silvergate Capital jumped on Wednesday afternoon after the market maker disclosed the investment in a regular filing with the US Securities and Exchange Commission. The stake, worth about $25 million, was a result of Citadel Securities’ market making operations, rather than a directional investment into the beaten-down crypto banker.

The announcement comes shortly after the world’s largest asset manager, BlackRock, disclosed a significant position in Silvergate. The disclosure showed that BlackRock increased its holding to 7.2%, up from roughly 5.9% a year earlier, which caused a significant move in Silvergate stock.

Other Wall Street firms, including custodian bank State Street, reported notable stakes in Silvergate earlier this month. That apparently boosts investors’ confidence in the bank that has been struggling in the aftermath of FTX collapse.

Despite the recent gains, Silvergate share is still down nearly 20% year to date. They are also off by about 87% when weighed against the peak it hit near $220 in 2022. A massive sale occurred earlier this month after the local three-branch lender reported a decrease in deposits and announced a delay for a major stablecoin project.

Adding to its pain, Silvergate’s payment network, which allows crypto exchanges and other clients to instantly transfer funds, saw its activity fall by 41% in the quarter. The California-based company has grown its deposits from less than $1 billion in 2013 to over $13 billion, largely through providing banking services to crypto companies.

Silvergate, which is trading under the ticker (NYSE: $SI), also allows its customers to obtain US dollar loans collateralized by their bitcoin holdings at some crypto exchanges that it serves.

Despite the crypto winter, Citadel Securities has been increasing its exposure to digital assets space and blockchain technology. Earlier last year, it joined forces with US electronic market maker Virtu Financial, as well as other brokers to launch a cryptocurrency trading ecosystem.

The alliance would allow retail brokerages to provide crypto executions to their consumers. However, the initiative is still in its early development phase and the partners are watching regulatory reactions. Before the official launch of the crypto trading marketplace, Citadel Securities expects more wealth managers and other industry leaders to join the crypto-focused alliance.

 

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