As bitcoin, ethereum and other cryptocurrencies get increasing attention from investors, Wall Street and its traditional banks continue to adjust to the shift. Catch up on this week’s top stories highlighting the intersection of these old guard and new school areas of finance with this recap compiled by The Fly.
SILVERGATE CAUTIONS ON ABILITY TO SURVIVE: In a Wednesday regulatory NT 10-K filing, Silvergate Capital (SI) announced that it would delay filing its 10-K statement as it needs additional time to perform analysis, record journal entries and complete management’s evaluation of internal controls over financial reporting. The company said it also needs time to allow its independent registered public accounting firm to complete certain audit procedures. Additionally, Silvergate is currently analyzing certain regulatory and other investigations that are pending with respect to the company and its accounting firm is requesting detailed information relating to such matters.
The company also stated, “Subsequent to December 31, 2022, a number of circumstances have occurred which will negatively impact the timing and the unaudited results previously reported…including the sale of additional investment securities beyond what was previously anticipated and disclosed…primarily to repay in full the company’s outstanding advances from the Federal Home Loan Bank of San Francisco. The company sold additional debt securities in January and February 2023 and expects to record further losses related to the other-than-temporary impairment on the securities portfolio. These additional losses will negatively impact the regulatory capital ratios of the company and the company’s wholly owned subsidiary, Silvergate Bank, and could result in the company and the Bank being less than well-capitalized. In addition, the company is evaluating the impact that these subsequent events have on its ability to continue as a going concern for the twelve months following the issuance of its financial statements. The company is currently in the process of reevaluating its businesses and strategies in light of the business and regulatory challenges it currently faces."
Following the filing, JPMorgan downgraded Silvergate Capital to Underweight from Neutral. With Silvergate having sold additional securities at a loss in January and February, "this reflects that the company is facing continued liquidity challenges," wrote the firm. Meanwhile, Canaccord analyst Joseph Vafi downgraded Silvergate Capital to Hold from Buy with a price target of $9, down from $25. Silvergate fully paid down short-term borrowings it had with the Federal Home Loan Bank of $4.3B, the firm pointed out, adding paying down these short-term but still material borrowings so rapidly is a surprise. "We are not sure as to why it occurred either," wrote the analyst, who said the move will reduce bank liquidity materially. Canaccord wants to wait "until the dust clears here" before recommending the shares.
Compass Point analyst David Rochester also downgraded Silvergate Capital to Neutral from Buy with a price target of $10, down from $16, citing "materially reduced visibility". Additionally, Goldman Sachs analyst Will Nance suspended the firm’s investment rating on Silvergate Capital citing "insufficient information on which to base an investment view."
COINBASE ACQUIRES ONE RIVER DIGITAL ASSET MANAGEMENT: Coinbase (COIN) announced Friday it has acquired One River Digital Asset Management, an institutional digital asset manager and SEC-registered investment adviser. ORDAM will transition to become Coinbase Asset Management, and will operate as an independent business and wholly-owned subsidiary of Coinbase. The company said, "The acquisition aligns with our long-term strategy to unlock further opportunities for institutions to participate in the cryptoeconomy."
In a Monday tweet, Coinbase said, "We regularly monitor the assets on our exchange to ensure they meet our listing standards. Based on our most recent reviews, Coinbase will suspend trading for Binance USD on March 13, 2023, on or around 12pm ET…Trading will be suspended on Coinbase.com, Coinbase Pro, Coinbase Exchange, and Coinbase Prime. Your BUSD funds will remain accessible to you, and you will continue to have the ability to withdraw your funds at any time."
Additionally on Thursday, Coinbase tweeted, “At Coinbase all client funds continue to be safe, accessible & available. In light of recent developments & out of an abundance of caution, Coinbase is no longer accepting or initiating payments to or from Silvergate. Coinbase will be facilitating institutional client cash transactions with our other banking partners and have taken proactive action to help ensure that clients experience no impact from this change…Coinbase has de minimis corporate exposure to Silvergate.”
MARATHON RECEIVES SEC LETTER: In a Tuesday regulatory filing, Marathon Digital Holdings (MARA) disclosed that on February 22, the company received a comment letter from the Corporation Finance Staff of the Securities and Exchange Commission relating to, among other things, certain accounting matters.
The company said, "On February 27, 2023, the company’s Audit Committee of the Board of Directors, after consultation with Marcum LLP, the company’s independent auditor, concluded that due to certain accounting errors, as described below, the previously issued audited consolidated financial statements contained in the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and the previously issued unaudited condensed consolidated financial statements for the interim periods in 2022 and 2021 as contained in the company’s Quarterly Reports on Form 10-Q for the fiscal periods ended March 31, 2021 and 2022, June 30, 2021 and 2022 and September 30, 2021 and 2022 should no longer be relied upon. Similarly, related earnings releases and other financial communications for these periods should no longer be relied upon. The company intends to correct the errors and will be restating the Impacted Financial Statements. Management and the Audit Committee have discussed these matters with Marcum LLP. As a result of receiving the SEC comments on February 22, 2023 and the Audit Committee’s determination to restate the Impacted Financial Statements, the company is unable to complete and file its Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and to make the required corrections to its financials and accompanying disclosures for the Impacted Financial Statements by the filing deadline for the company’s 2022 Form 10-K of March 1, 2023. The company expects to file a Form 12b-25 with the SEC indicating that the company intends to file its 2022 Form 10-K on or before the fifteenth calendar day following the prescribed due date.”
Additionally on Friday, J Capital announced that the firm is short Marathon, as it concludes that Marathon "may have taken at least $250M out of the company via overstated purchases of miners" based on interviews with mining companies in China. Silvergate Bank, "historically MARA’s biggest source of liquidity, just announced that it can’t file its 2022 financials on time and may not be able to continue as a going concern," the firm said, while Marathon’s "crypto-mining business did not make money even when bitcoin was averaging around $47,500.” The firm alleges that the company "has made a series of highly questionable payments, awarding shares to a company that appears not to exist, paying $35.5M to a related party company without disclosing that company’s business, making huge deposits with service providers for unclear reasons, and much more."
RIOT REPORTS 2022 EARNINGS: Riot Platforms (RIOT) reported 2022 results on Thursday, with fiscal year loss per share of 47c on a revenue of $259.2M, which compared to analyst estimates of a loss per share of $2.78 on revenue of $254.51M. The company also produced 5,554 bitcoin in 2022, as compared to 3,812 during the same twelve-month period in 2021, a 46% increase.
CEO Jason Les said, “This was a remarkable year of growth for Riot, as we more than tripled our hash rate capacity, leading to numerous monthly production records, and finished the year at an all-time high of 9.7 EH/s in hash rate capacity, which is a testament to the hard work our best-in-class team has put in throughout 2022…In 2022, Riot realized significant benefits from our unique power strategy, from which we generated more than $27M in power credits through voluntary energy curtailment under our low-cost, large-scale, and long-term fixed rate power contracts. These power credits enabled us to lower our cost of production in 2022, on a non-GAAP basis, to among the lowest in the industry. Despite challenging market conditions, particularly in the second half of the year, Riot was also able to maintain our strong financial position, ending 2022 with approximately $230M in cash, no long-term debt, and 6,974 bitcoin, worth approximately $116M on a non-GAAP basis based on year-end Bitcoin prices. Riot’s industry-leading financial strength puts us in a strong position to continue executing on our aggressive growth plans, in 2023 and beyond.”
GENSLER SAYS CRYPTO PLATFORMS NOT NECESSARILY CUSTODIANS: In prepared remarks posted Thursday before the Investor Advisory Committee of the Securities and Exchange Commission, Chairman Gary Gensler said in part: "The Commission recently proposed a new safeguarding rule for investment advisors, building on the current, 2009 custody rule. The proposal takes up Congress’s 2010 provision for us to expand the custody rule to cover all of an investor’s assets, not just their funds or securities…I know there’s been recent attention to this proposal regarding its intersection with crypto. Make no mistake: Our current custody rule, adopted in 2009, covers a significant amount of crypto assets. Advisers, in complying with the current custody rule, are required to safeguard investors’ crypto funds and securities with qualified custodians. Make no mistake, again: Based upon how crypto trading and lending platforms generally operate, investment advisers cannot rely on them today as qualified custodians. To be clear: just because a crypto trading platform claims to be a qualified custodian doesn’t mean that it is. When these platforms fail-something we’ve seen time and again-investors’ assets often have become property of the failed company, leaving investors in line at the bankruptcy court. The new proposed safeguarding rule-in addition to expanding the custody rule’s safeguards to cover all assets-would make important enhancements to the protections that qualified custodians provide. I welcome your thoughts on the proposal, as well as the letter I understand you will be submitting regarding the crypto markets.”
CRYPTO STOCK PLAYS: Cryptocurrency revenues have been pointed to as reasons to be bullish on Advanced Micro Devices (AMD) and Nvidia (NVDA) in select research. Ideanomics (IDEX), Riot Platforms, Overstock (OSTK), and SRAX (SRAX) are other stocks that have been touted, or promoted themselves, as a way to play the crypto theme.
PRICE ACTION: As of time of writing, bitcoin dropped roughly 6% this week to $22,403 in U.S. dollars, according to TradeBlock.
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