Crypto-friendly lender Silvergate collapses | CNN Business

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New York CNN—

Crypto-focused lender Silvergate said it was winding down operations and liquidating the bank after it was financially hit by the digital asset turmoil.

“In light of recent industry and regulatory developments, Silvergate believes that an orderly liquidation of the Bank’s operations and a voluntary liquidation of the Bank is the best course of action,” it said Wednesday. in a press release.

The bank’s plan includes “full repayment of all deposits”, he said.

The Silvergate collapse is a rare example of crypto volatility spilling over into the traditional banking system. The bank is a traditional federally insured lender that has positioned itself as a gateway to the digital asset space.

So far, however, there appears to be little risk of Silvergate’s turmoil spreading to other banks, said Dave Weisberger, CEO of CoinRoutes, an algorithmic trading platform.

“Silvergate’s problems were primarily the result of less than adequate risk management, including relying too heavily on volatile short-term deposits while lending or investing over a longer term,” Weisberger said. “It’s not like the collapse of FTX, where investors lost their deposits, but more of an orderly dissolution.”

Yet Silvergate’s collapse is the latest in a series of failures among major crypto-related companies that is fueling calls for greater regulation of digital assets.

Senator Elizabeth Warren, an outspoken crypto critic, weighed in on Twitter shortly after Silvergate’s announcement.

“As the bank of choice for crypto, Silvergate Bank’s failure is disappointing, but predictable,” she wrote. “Now customers must be made whole and regulators must step up against crypto risk.”

Silvergate’s stock is down 97% from its November 2021 high — a drop that mirrors that of the broader crypto market. A series of bankruptcies and scandals in 2022, including the stunning implosion of Sam Bankman-Fried’s business empire in November, left the crypto industry reeling.

Once valued at $3 trillion, the entire market is now worth around $1 trillion.

Wednesday’s announcement comes a week after Silvergate delayed its annual filing with the Securities and Exchange Commission, warning it could go bankrupt. This news prompted the bank’s biggest crypto industry clients, including Coinbase and Paxos, to withdraw their deposits.

The La Jolla, Calif.-based lender announced a $1 billion loss for the fourth quarter as investors panicked over the collapse of FTX.

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