Silvergate Crypto-Focused Bank Shuts Down and Liquidates

Key Facts

• Silvergate announces liquidation following a market meltdown
• Silvergate was one of the first crypto-focused banks
• Depositors will not lose their money
• FTX’s collapse played a significant role in the bank stability

Looks like the turmoil in the digital coins sector is far from over. A week ago, San Diego-based cryptocurrency-focused bank announced that it was shutting down following a market meltdown that saw its share prices plunge by about 50%. The company had earlier mentioned that it was considering seeking investors to enable it to continue operating as a going concern, but it looks like this wasn’t successful.

Tyrone Ross, CEO of 401 Financial, believes that this was long overdue following the demise of FTX. When the crypto exchange which was among Silvergate’s anchor customers filed for bankruptcy in 2022, the banks’ shares dropped by about 30%. Since then, it has navigated choppy waters. The bank’s integrity was called into question, including how it conducted KYC and why it failed to detect suspicious money transfers. Customers withdrew, leaving the financial institution with only about $3.8 billion in deposits out of a total of $10 billion. The bank had to sell securities and even take out a loan to stay afloat. It had just over $11 billion in assets before going bankrupt, compared to Signature Bank, which had over $112 billion.

The institution’s cracks were clearly exposed during a March 1 regulatory filing where it subtly implied that it was under-capitalized. Partners such as Coinbase, Galaxy Digital, and Paxy raced to cut ties with the bank, switching to other options like Signature. Panic skyrocketed when the institution shut down its exchange, which was the first of its kind in traditional banking, leading to uncontrolled share dumping.

Elizabeth Warren, a US senator, tweeted her dismay but expressed that Silvergate had been operating on a risky path.

“As the bank of choice for crypto, Silvergate Bank’s failure is disappointing but predictable. I warned of Silvergate’s risky, if not illegal, activity — and identified severe due diligence failures. Now, customers must be made whole & regulators should step up against crypto risk.”

The company laid off about 40% of its workforce at the beginning of 2023. Despite having secured huge investments from Citadel Securities and BlackRock, it filed a $ 1 billion net loss during the fourth quarter of its financial year.

Politicians and investors are now calling for strict measures in the cryptocurrency sector to protect innocent investors. Countries like the UK are already working on such a framework. For now, Silvergate Bank is cooperating with regulators in the shutdown to ensure all the proper steps are followed, including repayment of all deposits.