Crypto Bank Silvergate Announces Liquidation Amid Industry Turmoil | Cryptocurrencies

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US cryptocurrency-focused lender Silvergate is to halt operations after being hit by customer withdrawals following the collapse of crypto exchange FTX.

The California-based bank had warned last week that it was “less than well capitalized” after depositors demanded their money, adding that it was assessing its ability to operate as a going concern.

Silvergate said a voluntary liquidation of the bank was “the best course of action” in light of “recent industry and regulatory developments”. The failure of FTX sparked new volatility in the crypto markets. Silvergate also revealed that he was under investigation by the US Department of Justice.

Its liquidation and liquidation plan includes the full repayment of deposits, the bank added. Silvergate posted a loss of $1bn (£840m) for the fourth quarter of 2022 after investors rushed to withdraw more than $8bn in deposits, forcing it to take losses by selling assets to cover the cost of withdrawals.

Several of the bank’s partners, including Coinbase, a crypto exchange, and Galaxy Digital, a crypto-focused financial services company, cut ties with Silvergate last week. FTX and its affiliate trading arm, Alameda Research, had Silvergate accounts.

After Silvergate’s statement, Coinbase said it had no corporate customers or money with the lender. Changpeng Zhao, the managing director of Binance, the world’s largest crypto exchange, said his company has not suffered any loss of assets at Silvergate.

Founded in 1988, Silvergate ventured into crypto in 2013. The bank had also operated a mortgage warehouse business, but announced in December that it would end that division, citing rising interest rates. interest and reduced mortgage loan volumes.

Last week, the bank terminated the Silvergate Exchange Network (SEN), its crypto-payments platform and one of its most popular offerings. This network enabled round-the-clock transfers between investors and crypto exchanges, unlike traditional bank transfers, which can often take days to settle.

Although contagion risks are minimal, given that Silvergate has said it will repay depositors and has performing loans, SEN’s loss is disappointing, said Ram Ahluwalia, managing director of Lumida Wealth, a specialist investment adviser. in digital assets.

“It’s more of a strategic loss of crypto-critical infrastructure,” he told Reuters.

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Federal prosecutors in Washington are investigating the company and its dealings with FTX and Alameda Research. In January, three US senators asked Silvergate for details about its risk management and FTX.

Over $1 billion has been wiped from the value of the crypto sector in 2022 as rising interest rates have affected the appetite for riskier assets.

After rapid growth in 2020 and 2021, bitcoin, by far the most popular cryptocurrency, fell over 60% last year, putting pressure on the digital asset industry. Bitcoin fell below $16,000 after FTX collapsed in November, but has since recovered to around $21,000.

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