Silvergate Bank Ends Operations in Blow to Crypto Industry

[ad_1]

Text size

The headquarters of Silvergate Bank in La Jolla, California. Ariana Drehsler/Bloomberg

Silvergate Bank, a major player in the cryptocurrency world, is considering ending operations and liquidating, its holding company announced Wednesday afternoon.

The holding company, Silvergate Capital (ticker: SI), said in a press release on Wednesday afternoon that its liquidation plan includes the full repayment of all deposits and that most deposit-related services will remain available during the process. closing.

Silvergate stock fell 31% after hours trading at $3.40.

It’s very bad for the industry, said Mizuho analyst Dan Dolev, who was skeptical of the digital asset industry’s long-term prospects. You don’t want to have a house in a neighborhood where all the windows are broken.

Silvergate, based in La Jolla, Calif., said in a filing with the Securities and Exchange Commission last week that it would delay filing its annual report and was evaluating its ability to continue in business.

The bank was founded in the late 1980s, but began to grow rapidly in 2013 when it began focusing on attracting cryptocurrency companies as clients. This filled a need because at the time, many in the crypto industry had struggled to find traditional companies willing to offer them services. As the market for Bitcoin and other tokens grew, the bank did the same, growing its deposit base to $14.3 billion by the end of 2021.

It unfolded last year as a series of bankruptcies in the crypto industry culminated in allegations of fraud against trading platform FTX, with whom Silvergate had a banking relationship. In the fourth quarter, Silvergate experienced a run on deposits, which fell from $8.1 billion to $3.8 billion.

Today we see what can happen when a bank is too dependent on a risky and volatile industry like cryptocurrencies, Senate Banking Committee Chairman Sherrod Brown (D., Ohio) said in a statement on the collapse.

Although Silvergate never became more than a niche bank, its demise has serious consequences for the crypto industry. Most major digital asset companies had accounts there at one time, and the bank had created the Silvergate Exchange Network, which allowed its own customers to send money to each other in near real time, 24 hours a day. 24, without going through other intermediaries.

As companies such as Circle Internet Financial, Gemini Trust Co. and Coinbase Global (COIN) pulled out of doing business with the bank, Silvergate shut down the network on Friday.

The liquidation of Silvergates comes as crypto firms find it increasingly difficult to find other traditional banking partners. This year, major U.S. banking regulators sent out guidelines warning banks of the risks of doing business with crypto companies. Some industry players have reported having difficulty finding a bank.

With the price of Bitcoin surging 32% to around $22,000 so far this year, some experts say the disruption caused by the end of Silvergate, combined with lower liquidity in the token market, could stop the rally in its tracks.

Email Joe Light at [email protected]

[ad_2]