Silvergate Capital Plunges into Crypto Exodus and Fed Foreclosures

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Shares of cryptocurrency banker Silvergate Capital (SI) plunged in early trading, after the company reported a sharp decline in crypto-related deposits in the fourth quarter. SI stock fell 47% in early trading Thursday.

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In preliminary fourth-quarter results late Wednesday, the La Jolla, Calif.-based bank said it had sold large amounts of assets at a loss. She sold the assets to cover $8.1 billion in client withdrawals. The bank, which ended Wednesday with a market capitalization of $694.9 million, reported a loss of $718 million. The loss relates to debt liquidated to cover withdrawals.

Silvergate’s digital asset deposits fell to $3.8 billion during the fourth quarter. That’s down nearly 68% from the $11.9 billion in crypto-related deposits in Q3. The company also laid off 200 employees, or 40% of its workforce. Additionally, it says it will streamline its product portfolio to help manage expenses in a “more challenging macro environment.”

One of the scrapped projects is the launch of Silvergate’s blockchain-based payment solution, which the bank says is no longer imminent. Silvergate will take a $196 million impairment charge in the fourth quarter related to technology assets purchased from Diem Group backed by Meta Platforms (META).

As of December 31, Silvergate held $4.6 billion in cash and cash equivalents. This exceeded their clients’ crypto-related deposits, according to the company.

Seizure of the Silvergate Capital fund

A separate court filing released Wednesday showed that a federal magistrate in New York in December ordered the seizure of funds held by Silvergate. The funds are said to be tied to bankrupt cryptocurrency exchange FTX. These funds may be in the order of $93 million, according to data from the Wall Street Journal.

The seizure of Silvergate Capital was apparently part of a larger move by federal authorities to subsume assets related to the collapse of FTX. Robinhood Markets (HOOD) assets were also targeted. The WSJ reported that part of the dispute involved 56 million shares, worth about $450 million at press time. FTX founder Sam Bankman-Fried, FTX creditor Yonathan Ben Shimon, and bankrupt crypto lender BlockFi have all claimed ownership of the shares in question.

Justice Department officials believe these assets “are not part of the bankruptcy estate” or subject to exemptions, the WSJ reported.

Robinhood stock fell more than 3% in early morning action Thursday.

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