Crypto-Friendly Bank Silvergate Is Most Shorted Stock

By André Beganski

Crypto-friendly Silvergate Bank has clinched the title of most shorted stock on Wall Street—a strong indication that traders think the beleaguered bank’s stock price will continue to go down.

Of all the shares in Silvergate that are available for investors to buy and sell, 73.5% of them are being sold short, according to data from MarketWatch. The next most shorted stocks are Carvana (60.6%), followed by Applied UV (50.3) and Bed Bath & Beyond (48%).

When an investor sells a stock short, they borrow shares in a company and then immediately sell them, expecting to buy the stock for a cheaper price in the future and pocketing the difference.

Silvergate’s stock price was down around 11% Tuesday to $16.08, as of this writing. The figure represented a 92% decline from its all-time high of $222.13 in November 2021, when the digital assets industry was booming and the price of Bitcoin was around $63,000.

Billionaire investor George Soros is among those betting that Silvergate’s stock price will fall further, according to a recent filing with the Securities and Exchange Commission (SEC). The put options purchased by Soros' hedge fund–which gives traders the right to buy shares at a lower price–were valued at $1.7 million.

Investors piling on bets against Silvergate comes amid a regulatory crackdown on crypto by both banking regulators and the SEC.

The Department of Justice (DOJ) revealed earlier this month that it was examining the bank’s relationship with cryptocurrency exchange FTX, which collapsed last November, leading founder Sam Bankman-Fried to be charged with a litany of financial crimes.

The DOJ is looking into how the La Jolla-based institution handled bank accounts held in connection with the exchange as well as those tied to Alameda Research, a trading firm owned by Bankman-Fried that allegedly received billions of dollars in customer funds.

Analysts from Wells Fargo said the collapse of FTX could hamper Silvergate’s business opportunities in the future, especially if it leads regulators to make it hard for banks to become involved in the asset class.

“Fallout from the collapse of FTX and broader volatility in crypto may lead lawmakers to be less willing to allow digital assets to integrate with the financial ecosystem in the near term,” a recent research note states.

Analysts noted the regulatory blitz could also impact the launch of Silvergate’s stablecoin–a digital token that tracks the price of a fiat currency like the dollar. “If regulators preclude banks from the space, that would delay or reduce the revenue opportunity [Silvergate] sees from being a direct stablecoin issuer in the future.”

Silvergate purchased assets from a defunct Facebook project for $200 and had planned to launch a stablecoin using the technology in 2021. However, Silvergate disclosed it had written down the assets’ value by $196 million or 98% last month.

Company CEO Alan Lane said the write-down occurred because it would be difficult for Silvergate to take a stablecoin to market “anytime soon.”

Around the same time, Silvergate said its bank deposits had been rocked as Bankman-Fried’s crypto empire came crumbling down, falling $8.1 billion in the final fiscal quarter of last year.

To satisfy the flurry of withdrawals, Silvergate tapped the Federal Home Loan Bank (FHLB) for a $4.3 billion loan and sold roughly $5.2 billion in debt securities, prompting lawmakers including Elizabeth Warren (D-Mass) and John Kennedy (R-La) to criticize the bank in an open letter addressed to Lane.

“Congress and the public need and deserve the information necessary to understand Silvergate’s role in FTX’s fraudulent collapse, particularly given the fact that Silvergate turned to the Federal Home Loan Bank as its lender of last resort in 2022,” the officials wrote.

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