Silvergate Forced to Cover $8 Billion in Crypto-Related Withdrawals | Cryptocurrencies

[ad_1]

Clients of US bank Silvergate, one of the few mainstream financial organizations focused on providing services to the cryptocurrency industry, have withdrawn over $8 billion ($6.7 billion) from their linked deposits to the lender’s crypto.

More than two-thirds of customer deposits were withdrawn in the last three months of 2022 as the collapse of the FTX exchange reverberated through the cryptocurrency world.

While most of the impact of the collapse has so far only been felt by other organizations and individuals in cryptocurrency, limiting contagion to the wider economy, Silvergate, a otherwise conventional bank, was forced to take extraordinary measures to protect its balance sheet.

The bank said on Thursday it had been forced to sell $5.2 billion worth of assets for cash to cope with ever-lower deposit levels and maintain a very liquid balance sheet, and has recorded a loss of $718 million on these sales.

In response to the rapid changes in the digital asset industry during the fourth quarter, we took proportionate steps to ensure we maintained liquidity to meet potential deposit outflows, and we currently maintain a superior cash position. to our digital asset-linked deposits,” said Alan Lane, chief executive of Silvergate.

The bank attributed the withdrawals to a crisis of confidence in the ecosystem that had led many people to seek to reduce their risk to digital assets.

California-based shares of NYSE-listed banks fell more than 40% on the news, on top of a longer-term decline of nearly 90% over the past year. Once a small community bank, it reinvented itself during the crypto boom as one of the preferred service providers for businesses that found it difficult to work with conventional financial providers.

We are in a shoot-first, ask-later period for any bad news related to crypto and crypto-related businesses, said Thomas Hayes, chairman and managing member of investment firm Great Hill Capital. .

We expect this carnage to continue for some time as there is no way to value the underlying asset.

One of Silvergates biggest clients was Alameda Research, the hedge fund created by Sam Bankman-Fried, and the ultimate cause of FTX’s downfall. The Alamedas Silvergate bank account was used by FTX to receive incoming wire transfers for the exchange. These ultimately remained in Alamedas accounts rather than being forwarded to FTX.

That missing money left an $8 billion hole in FTX’s books, preventing it from making customer withdrawals during a stock market run in November.

In the United States, three federal financial agencies, the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, issued a statement on Tuesday warning banks that issuing or holding cryptocurrency is very likely to be incompatible with safe and sound banking practices.

[ad_2]