Silvergate Bank To Close Down, Amid FTX Aftermath

Silvergate Capital, one of the two main banks for the crypto industry, announced on Wednesday that it will wind down operations and liquidate its bank.

In a statement, Silvergate Capital announced “its intent to wind down operations and voluntarily liquidate the Bank in an orderly manner and in accordance with applicable regulatory processes.”

Silvergate Capital is the holding company of Silvergate Bank, which alongside New York Signature Bank, has just over $11 billion in assets, compared with over $114 billion at Signature Bank.

Silvergate closure

Bankrupt crypto exchange FTX was a major Silvergate customer.

Indeed one of Silvergate’s biggest customers was Alameda Research, the hedge fund set up by Sam Bankman-Fried, founder of the collapsed FTX crypto exchange.

In January Silvergate revealed that its customers had withdrawn more than $8 billion (£6.8bn) in cryptocurrency-linked deposits in the last three months of 2022.

The bank at the time said it had sold $5.2bn in assets to cover its costs and remain liquid. The withdrawals accounted for about two-thirds of its crypto deposits.

California-based Silvergate was formerly a small community bank, but during the latest crypto boom refocused on offering services to organisations in the crypto industry.

The bank went public in 2019 and saw its shares rocket more than 1,500 percent in 2021.

Recently three US federal agencies, the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency, warned banks that issuing or holding cryptocurrency was “highly likely to be inconsistent with safe and sound banking practices”.

“In light of recent industry and regulatory developments, Silvergate believes that an orderly wind down of Bank operations and a voluntary liquidation of the Bank is the best path forward,” the bank said.

“The Bank’s wind down and liquidation plan includes full repayment of all deposits,” it added. “The Company is also considering how best to resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets.”

The liquidation comes less than a week after Silvergate Bank made a decision to discontinue the Silvergate Exchange Network (SEN) – one of its core offerings.

All other deposit-related services remain operational as the Company works through the wind down process. Customers will be notified should there be any further changes.

Struggling bank

CNBC reported that crypto companies such as Coinbase and Galaxy Digital had raced to cut ties with Silvergate last week, after the bank warned that it was unsure whether it could stay in business.

According to CNBC, Silvergate has been struggling for months.

In addition to laying off 40 percent of its workforce in January, the firm reported a nearly $1 billion dollar net loss in the fourth quarter following a rush for the exits at the end of last year that saw customer deposits plummet 68 percent to $3.8 billion.

To cover the withdrawals, Silvergate had to sell $5.2 billion dollars of debt securities.