Silvergate Stock Slumps Over 40% As Bank Grapples With Crypto Crisis

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Topline

Silvergate Capital on Thursday revealed a series of worrying financial moves, including $8.1 billion in withdrawals late last year, linked to the shocking collapse of its top client FTX, sending its stock soaring, as that the cryptocurrency-focused financial institution is treading water.

Direction from Silvergate to the opening bell of the New York Stock Exchange ahead of the bank’s IPO in November… [+] 2019.

Copyright 2019 The Associated Press. All rights reserved Highlights

Crypto customers withdrew $8.1 billion from Silvergate in the last three months of 2022, the company said in its preliminary quarterly report, causing its total digital asset deposits to drop by 68% from $11.9 billion to $3.2 billion.

To fund the run, which coincided with the high-profile breakup of Silvergates’ top tier client FTX, Silvergate sold $5.2 billion worth of debt securities at a loss of $718 million and laid off 40% of its employees (about 200 layoffs).

Silvergate revealed on Thursday that about $150 million of bank deposits came from bankrupt customers, an apparent reference to FTX’s holdings in the institution, and Silvergate had previously said FTX made up less than 10% of its deposits while he was trying to allay investor fears.

In a statement, the company attributed the recent run to a crisis of confidence across the [crypto] ecosystem.

Shares of Silvergate fell 42.7% in trading on Thursday, and the stock is down about 75% since FTX began to slump in early November.

Key Context

Silvergate was one of the first banks to work with crypto clients, positioning itself as the leading financial institution for digital assets. The company has hit highs with the crypto boom, with its stock gaining more than 1,700% from its initial public offering of $12 per share in 2019 to its high of $220 in late 2021. But just like Silvergate has profited of the rapidly rising value and popularity of digital assets, it has been crushed by the deterioration of the industry, with its stock price of $11.45 on Thursday its lowest price since April 2020. The total market capitalization of crypto tokens worldwide is around $850 billion, according to CoinGecko, up from $3 trillion in November 2021.

Surprising fact

Authorities ordered the seizure of $93 million in FTX funds held at Silvergate last month, a court filing revealed on Wednesday, also supporting or planning to seize more than $460 million in platform stock. retail company Robinhood owned by FTX, disgraced CEO Sam Bankman-Fried and related parties.

Tangent

Shares of crypto exchange Coinbase, which is one of the few publicly traded companies to primarily deal in digital assets alongside Silvergate, fell 13% at the start of Thursday’s trading. Coinbase on Wednesday agreed to a $100 million payout to settle an investigation by New York financial authorities for doing the bare minimum to meet compliance and anti-money laundering requirements.

Further reading

Feds Set to Seize FTX Robinhood Stock as Sam Bankman-Fried Faces Fraud Charges (Forbes)

Coinbase to pay $100 million after regulators find ‘significant failures’ and increased risk of criminal activity (Forbes)

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