(Bloomberg Opinion) — Just months before Silvergate Capital Corp. announced it would shut down, the first banking victim of the crypto industry’s implosion, a company called Block.one was boosting its investment.
Bloomberg’s Most Read
Silvergate shares were plummeting, depositors were fleeing and short sellers were circling, but Block.one and its chief executive, Brendan Blumer, were big buyers. In November, they bought shares for a 9.27% stake in the lender, according to a statement from later that month. By late December, the company, whose longtime backers include Peter Thiel and Alan Howard, had boosted that position so that Block.one, along with Blumer, became Silvergate’s largest shareholder with a combined stake of 9.9%
“Silvergate’s current share prices do not accurately reflect its strong balance sheet, strategic positioning or market-challenging growth trajectory and therefore offers a unique investment opportunity,” Block.one said in the statement from November revealing your initial purchase. “We are excited to be a new passive shareholder.”
Block.one was not alone. Miller Value Partners LLC, the money manager founded by legendary investor Bill Miller, who ran value investing strategies for decades at Legg Mason, also increased its stake in the fourth quarter, documents on its website show.
It could have been a shrewd bet if Silvergate had been able to weather the downturn. But that didn’t happen. Silvergate held deposits for FTX, the cryptocurrency exchange whose bankruptcy in early November rocked a market already battered by crises in the spring and summer. FTX’s collapse led to a run on deposits at the bank and a stampede of its shares, as well as regulatory scrutiny, sending Silvergate into a tailspin from which it was ultimately unable to recover. On Wednesday, the bank announced that it was winding down and liquidating.
Silvergate plans to close banking operations and liquidate
When Block.one disclosed its initial 9.27% stake in a November statement, which has since been removed from its website, the stake was worth more than $90 million based on the share price at the time, according to calculations. from Bloomberg. At the end of December, his increased 9.9% stake was worth $54.5 million.
Since the end of 2022, Silvergate shares have lost 70% of their value; its shares plunged more than 40% after trading alone on Wednesday after closing at $4.91 apiece. Block.one was around for most of that downward journey: it pulled out of its stake only last week, after the bank failed to file its annual report on time and shut down a payments network once widely used by businesses. cryptographic
“While we are disappointed with this result, we remain steadfast that banks and other financial institutions embracing the digital asset and cryptocurrency sectors are well positioned to use technology to enhance the capabilities of both traditional financial services and the new economy. of expanding digital assets. Block.one said in a statement Wednesday on its website. Representatives for Block.one and Silvergate did not respond to requests for comment.
In the case of Miller Value Partners, its Miller Opportunity Trust fund added more than 1 million Silvergate shares in the fourth quarter, according to its filings. The $1.3 billion fund, which seeks to make contrarian bets for long-term returns, valued that holding at $22.6 million at the end of December, according to filings. The Miller Opportunity Trust, managed by Samantha McLemore, began increasing its stake in Silvergate in the third quarter of 2022, the documents show. The fund, which plunged 36% in 2022, is up 15% so far this year. His current position at Silvergate is unclear.
MacKenzie Bozel, a spokeswoman for Miller Value, declined to comment.
“At the time, it seemed like a probably smart move,” said Brock Pierce, the co-founder of Block.one, who stepped down several years ago after a brief stint, his LinkedIn profile shows. “Obviously, the shares were very low. They always talk about trying to catch a falling knife. It’s risky business and it seems like what’s happened here is the downside of trying to do that.”
For Block.one, the setback marks the latest turn of events in a story not without its blemishes. Backed by billionaire investors like PayPal Holdings Inc. co-founder Peter Thiel and hedge fund moguls Alan Howard and Louis Bacon, Block.one began launching a blockchain known as EOS. The company is best known for raising over $4 billion from its initial coin offering between 2017 and 2018, the largest so-called ICO in history.
The EOS blockchain never really took off in popularity and the company was soon embroiled in scandal. The US Securities and Exchange Commission fined Block.one $24 million in 2019 for failing to register its initial coin offering, raising concerns about apparently suspicious transactions and possible price gouging. The EOS token is currently 95% below its all-time high of $23 in 2018, according to CoinMarketCap.
Since then, Block.one has turned to venture capital and has invested more than $4 billion in assets, according to its website. The firm has backed blockchain gaming startup Immutable as well as Galaxy Digital Holdings Ltd. The company also launched cryptocurrency exchange Bullish in 2021 with Blumer as president and CEO, but the company’s ambitions to go public were affected when Bullish canceled a bid of $9. $1 billion deal with special purpose acquisition company Far Peak Acquisition Corp in December.
The impact of the Silvergate investment is expected to be “immaterial” to Block.one, Pierce said. “Obviously not good, but relative to the overall business on your balance sheet, it’s not an event.”
Bloomberg Businessweek Most Read
©2023 Bloomberg L.P.