Silvergate Capital Corporation, the cryptocurrency-focused holding company of Silvergate Bank, ad its intention to close operations and voluntarily liquidate the banking unit.
The move came days after Silvergate shocked the industry with the news that was facing a financial crisis. The institution, which was one of the few banks to act as an intermediary in the institutional crypto space, is another victim of the “crypto winter” following the implosion of FTX, which the bank used to transfer client funds.
The bank was founded three decades ago in California as a small local lender, but in recent years it had skyrocketed to become a key player in the cryptocurrency industry. His fortune also rose and fell with the volatility of the market. As token prices increased, deposits at Silvergate increased from around $2 billion in 2020 to over $10 billion in 2021. But at the end of 2022its deposits plummeted to $6.3 billion, a decline of more than 50% from just three months earlier.
At the time of the FTX crash last fall, Silvergate tried to reassure investors and regulators that its exposure to the digital asset exchange was limited.
“As of September 30, 2022, Silvergate's total deposits from all digital asset clients totaled $11.9 billion, of which FTX accounted for less than 10%. Silvergate has no outstanding loans or investments in FTX, and FTX is not a custodian of Silvergate's bitcoin-collateralized SEN leverage loans. To be clear, our relationship with FTX is limited to deposits,” Silvergate CEO Alan Lane wrote in a post. declaration in November.
But the government looked the other way. US prosecutors in the Justice Department's fraud unit were investigating Silvergate's dealings with FTX and Alameda Research, reported Bloomberg in February.
The closure of Silvergate will deal a major blow to the way money flows in and out of the world of cryptocurrencies. On March 3, the bank announced that discontinued Silvergate Exchange Network (SEN), his crypto payment network that allowed dollar transfers between investors and cryptocurrency exchanges 24/7. The volatile nature of cryptocurrencies means that very few financial institutions want to touch cryptocurrencies.
It seems that Silvergate customers are at least getting their deposits back. As the company said in its latest statement:
“In light of recent industry and regulatory developments, Silvergate believes that an orderly winding down of the Bank's operations and a voluntary liquidation of the Bank is the best way forward. The Bank's reduction and liquidation plan includes the full reimbursement of all deposits. The Company is also considering how best to resolve the claims and preserve the residual value of its assets, including its proprietary technology and tax assets."
