Silvergate Bank bites the dust; enters voluntary liquidation
Silvergate Bank finally bit the dust. The crypto-friendly bank, which has been struggling after the FTX scandal, is being shut down. The bank's holding company, Silvergate Capital, announced the decision to voluntarily liquidate the bank's operations. On March 1, the company had told investors it was assessing its ability to continue as a "going concern."
Why does this story matter?
- The crypto industry has been slowly recovering from the FTX fiasco. The Silvergate collapse is set to derail that recovery.
- The bank's absence in the crypto landscape will be hard to miss. Silvergate's collapse will force crypto clients to look for other less-regulated options.
- This will further increase the volatility of the sector, inviting more regulatory pressure.
Bank will fully repay all deposits
Silvergate Capital attributed the decision to wind down the bank's operations to recent "industry and regulatory developments." Last week, the company failed to file its annual 10-K report and hinted at more regulatory scrutiny (both public and private). "The bank's wind down and liquidation plan includes full repayment of all deposits," the company said in a statement.
Customers withdrew $8.1bn from Silvergate after FTX collapsed
Silvergate's struggles are well-documented. The bank, which was a vital cog in the crypto ecosystem, was among the worst hit due to the FTX collapse. In the last quarter of 2022, customers withdrew $8.1 billion from the bank. Silvergate's preliminary, unaudited financial results for 2022 filed in January included a net loss attributable to common shareholders of $948.7 million.
Many crypto clients cut ties with Silvergate
In an SEC filing, the company later said its finances are even worse than first reported. Silvergate's crisis worsened after it sold off its assets at a loss and shut its flagship payments network dubbed Silvergate Exchange Network. Following the company's announcements, most of its crypto clients, including Coinbase, Galaxy, and Crypto.com raced to cut ties with it.
The liquidation will invite more regulatory scrutiny
Silvergate's decision to liquidate its banking operations will invite more regulatory scrutiny of crypto's influence on the traditional finance sector. "Today we are seeing what can happen when a bank is overreliant on a risky, volatile sector like cryptocurrencies," said Senator Sherrod Brown from Ohio, the chair of the Senate Banking, Housing, and Urban Affairs Committee.