What is Silvergate fallout that is pulling down crypto market
The crypto world has been slowly moving toward normalcy after a disastrous 2022. However, the period of calm could be short-lived. An FTX-like scandal is brewing. The crypto-focused American bank Silvergate Capital is at the center of the new crypto meltdown. Various cryptocurrency exchanges, including Coinbase and Galaxy Digital, have dropped Silvergate as their banking partner.
Why does this story matter?
- The FTX collapse was a massive hit to the crypto market. The tremors of the collapse shook the industry to its bones.
- Everyone assumed that the market was done with the after-effects of the scandal. However, that didn't happen.
- That said, Silvergate's connection with FTX's collapse has brought back the demons that haunted the crypto world.
Silvergate is evaluating its ability to continue as "going concern"
Earlier this week, Silvergate announced in an SEC filing that its 10-K (a report of a publicly traded company's financials) filing would be delayed. In the filing, the bank revealed that it sold more assets to repay debts and is expected to record more losses. Silvergate added that it is assessing its "ability to continue as a going concern."
The company hinted at more regulatory scrutiny
In the filing, the bank also warned about more regulatory scrutiny. It said it could be affected by "various litigation (including private litigation) and regulatory and other inquiries and investigations." "The company is currently in the process of re-evaluating its businesses and strategies in light of the business and regulatory challenges it currently faces," Silvergate said.
Customers withdrew massively from Silvergate after FTX collapse
Silvergate's issues began after the FTX collapse. The bank suffered massive withdrawals out of fear. In the final three months of 2022, over two-thirds of customer deposits were withdrawn from the bank. The bank's net loss attributable to common shareholders in 2022 amounts to $950 million. Its net income in 2021 was only $75.5 million.
Silvergate's shares fell by over 50%
Silvergate's SEC filing was followed by a flurry of activity. Its shares plunged 58% by the close of Thursday's trading session. Along with this, the majority of its crypto clients have either dropped the bank or are planning to drop it. Coinbase, Circle, Paxos, Crypto.com, Galaxy Digital, and Gemini, among others, announced their decision to suspend business operations with the bank.
