- Silvergate Capital runs major clearing portal that skirts AML and KYC;
- Exposure to FTX, BlockFi, and Gemini said to be Silvergate achilles heel;
- Share price down 81% YTD despite new investor Brendan Blumer’s 10% stake;
- Silvergate is a US Federal Charter Bank and trades on the NYSE as “SI”
Its a milestone in human interconnectivity when Tiktok is becomes the best source of breaking news in crypto and geopolitical upheaval. But I have resigned myself to the fact that journalists too use social media platforms to find the smoke that indicates fire in many cases.
Silvergate Capital, organized and licensed as a state bank based in La Jolla, CA, operates the crypto world’s closest approximation of the SWIFT network, that allows for instantaneous transfer of capital in any quantity internationally. With the sole exception that it does not provide AML (anti money laundering) or KYC (know your client) information about the participants.
It is essentially the conduit through which US dollars are transformed into crypto currencies from US financial institutions to non-regulated offshore exchanges.
Meaning that, it could technically be deemed a platform for the international laundering of the proceeds of crime, or the best way to evade taxes.
The platform, known as “SEN” for Silvergate Exchange Network, is relied upon by almost all of the major crypto platforms such as Coinbase, Kraken, Circle, Polychain, Bitstamp and investment entities like Gemini, Genesis, Graysclae, and others. The company website claims to service “750 of the most recognized and well-funded digital currency exchanges, institutional investors, and software developers in fintech. ”
Silvergate Capital, the parent company of Silvergate Bank, lent Michael Saylor’s Microstrategy Inc $205 million so he could buy more Bitcoin. Microstrategy is down over 60% YTD.
The implications for this are significant, because the SEN system is designed to go around KYC and AML provisions, which is a violation of US federal law.
That means each of these institutions could be deemed to have engaged in money laundering activity and potentially wire fraud as well – both major felony crimes.
To suggest that this has the potential to crash crypto even further is an understatement.
Most importantly, this story coming to light could provide regulators with all the evidence they need to ban crypto trading anywhere that funds must originate from a US institution. This would slam shut one of the only loopholes available to crypto traders to trade in and out of USD and crypto at high speed, thereby wrecking an important pipeline of the entire crypto ecosystem.
Silvergate listed 15.5 billion in assets and 14.3 billion in liabilities as of its last quarterly financial statement for the period ending September 20, 2022.
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