Crypto bank Silvergate ranks as the second most-shorted stock on Wall Street

Over 72% of Silvergate Capital Corp stocks were shorted as of Jan. 31, shows FINRA's latest data.

Crypto bank Silvergate Capital Corp. stands in the second position as most-shorted stock in the United States, with over 72.5% of its shares shorted, according to the latest Short Interest Reporting from Feb. 9. 

The Financial Industry Regulatory Authority (FINRA) collects and publishes twice a month short interest positions of all equity securities. A short position means investors and traders believe the price of a security, such as a stock, will decrease in value. A short seller profits from the price decline of a security.

At the time of writing, Silvergate stock (SI) is down over 87% in the past twelve months. The bearish sentiment on Silvergate stems from its recent earnings report and legal battles the company faces over its relationship with bankrupt firms FTX and Alameda Research.

On Jan. 17, the bank announced a $1 billion net loss attributable to common shareholders in the fourth quarter of 2022. According to a report from the United States Securities and Exchange Commission (SEC), Silvergate saw significant outflows of deposits during the period, which forced the company to seek wholesale funding and sell debt securities to maintain liquidity.

Silvergate reportedly borrowed $3.6 billion from the U.S. Federal Home Loan Banks System to mitigate effects of a surge in withdrawals following the collapse of crypto exchange FTX in November 2022.

The bank faces probes and lawsuits in the U.S. for allegedly aiding FTX on fraudulent activities, including lending and commingling user's funds. The company has been accused of "furthering FTX's investment fraud", while shareholders claim Silvergate violated the 1934 Securities Exchange Act. A Justice Department investigation is currently ongoing over the bank's role in FTX businesses.

According to Silvergate, Alameda opened an account with the bank in 2018, before the launch of FTX. The company claims to have conducted due diligence at the time and monitored the situation on an ongoing basis.

Moody’s Investors Service recently reacted to the bank situation, downgrading ratings of Silvergate Capital and its bank to "junk", with a negative outlook for both organizations.