Silvergate Bank's crypto holding company, Silvergate Capital Corp., announced on Wednesday that it intends to cease operations and voluntarily liquidate its banking unit.
The move comes days after news that Silvergate was facing financial crisis rocked the industry. The institution, one of the few banks acting as an intermediary in the institutional cryptocurrency space, has become another victim of the "crypto winter" in which the bank used it to transfer client funds following the collapse of FTX.
The bank was founded three decades ago as a small local lender in California, but has become a major player in the crypto industry in recent years. His wealth rose and fell according to the dynamics of the market. As the value of the token increases, deposits on Silvergate grow from $2 billion in 2020 to more than $10 billion in 2021. But by the end of 2022, deposits had dropped to $6.3 billion, down 50% from three months earlier.
During the FTX controversy last fall, Silvergate tried to reassure investors and regulators that its involvement in the digital asset exchange was limited.
In the year As of September 30, 2022, Silvergate's total deposits from all digital asset clients were $11.9 billion, of which FTX accounted for less than 10%. To clarify that secured loans, our relationship with FTX is limited to deposits, Silvergate CEO Alan Lane wrote in November.
But the government looked elsewhere. As Bloomberg reported in February, an attorney with the US Department of Justice's Fraud Division investigated Silvergate's ties to FTX and Alameda Research.
The closing of Silvergate will cause a major disruption in the way money comes and goes from the crypto world. On March 3, the bank announced the termination of the Silvergate exchange network (Sen), its cryptocurrency payment network that allowed the transfer of dollars between investors and cryptocurrency exchanges 24/7. The volatility of cryptocurrencies means that very few financial institutions are willing to touch cryptocurrencies.
It looks like Silvergate customers will at least get their deposit back. According to the company's latest statement:
“In light of recent industry and regulatory developments, Silvergate believes the proposed resolution and voluntary liquidation of the bank is the best course of action. The bank's resolution and liquidation plan provides for full payment of all deposits. The company will discuss how to best settle claims and the residual value of the property, including innovative technology and tax credits.