Crypto-Friendly Bank Silvergate To End Operations
- March 9, 2023
- 4 minutes read
The crypto industry has yet another bad news on its plate. Silvergate Bank, a regulated bank that found its fortunes in being friendly to cryptocurrency companies, is shutting down after heavy financial losses. Silvergate Capital (NYSE: SI), the bank’s parent company, announced the shutdown in a recent statement to investors.
Silvergate will wound down and liquidate all its holdings. The bank says its liquidation plan “includes full repayment of all deposits”, which is reassuring in a crypto industry that is no stranger to depositors losing their shirts; you may light an incense to traditional bank regulations for Silvergate’s customer deposits being intact.
- Talking of losing their shirts, FTX was a popular crypto exchange that collapsed last November with nearly $9 billion in liabilities (customer deposits) and barely 10% of that amount to cover customer withdrawals. FTX, a major Silvergate customer, filed for bankruptcy and co-founder Sam Bankman-Fried was indicted for fraud along with three other executives at the exchange.
- FTX’s collapse sent the crypto world on a hunt for liquidity, spurring customers to withdraw deposits from Silvergate at an alarming rate. The bank had to sell assets at a loss to cover withdrawals and reported a $1bn net loss in the fourth quarter of 2022. In early March, the bank delayed its annual report amid accounting reviews and, now, has announced that it’s winding down entirely.
With Silvergate shutting down, many cryptocurrency exchanges will have to find other banking partners willing to let them move dollars in and out of the traditional financial system. Popular exchanges like Coinbase, Paxos, and Crypto.com already began distancing themselves, and many more would follow. Silvergate served as a main bridge between the crypto and traditional financial sectors alongside another licensed institution called Signature Bank (NASDAQ: SBNY).
- Signature Bank’s stock sunk 9% on Thursday after Silvergate announced its shutdown. On that same day, Signature Bank issued a statement touting its diversified financial position with over $100bn of assets. Unlike its ill-fated rival, Signature’s customer base is not concentrated on the crypto sector. The bank says 80% of its deposits come from typical businesses like law firms, healthcare firms, accounting firms, etc.
Silvergate’s stock has sunk 82% year-to-date and 98% from its peak price of $220 as of November 2021. Over 60% of the bank’s shares are held by short sellers whose bearish outlooks have been proven right.