Silvergate Capital, a California-based bank, has announced that it will begin the process of “winding down” its operations and voluntarily liquidating its bank after a collapse in the crypto market saw billions in deposits leave the bank in recent months. In a regulatory filing, the bank stated that it believes the voluntary liquidation of the bank is the best path forward given recent industry and regulatory developments. The bank also stated that its “wind-down” and liquidation plan includes full repayment of all deposits, and it is considering how best to resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets.
What is Silvergate Crypto?
Silvergate Capital Corporation is a bank holding company based in La Jolla, California, that provides innovative financial infrastructure solutions and services to participants in the digital currency industry. It operates as a state-chartered commercial bank that offers banking products and services to business customers in the fintech and cryptocurrency industries. Silvergate Bank, the company’s subsidiary, is one of the few banks in the United States that provides banking services to cryptocurrency businesses. The bank has built a reputation for offering 24/7 fiat on-ramps and off-ramps for cryptocurrency exchanges, institutional investors, and other cryptocurrency-related businesses.
Crypto Market Crash and Silvergate Losses
Silvergate Capital’s announcement comes after the collapse of the crypto exchange FTX in late 2022, which caused Silvergate to post nearly a billion-dollar loss and saw its total deposits from digital asset customers decline to $3.8 billion from $11.9 billion through its fourth quarter. Following this, crypto-related firms using the bank, such as Coinbase, Paxos, Galaxy Digital, and others, distanced themselves from Silvergate, hastening further withdrawals. The company suspended the Silvergate Exchange Network (SEN) on Friday afternoon, one of two platforms that offered crypto firms U.S. banking access outside regular banking hours.
Impacts of the Liquidation and Regulatory Challenges
The liquidation of Silvergate raises further questions about whether U.S. banks will shy away from the digital asset industry, constraining access for crypto firms. The bank’s collapse and the loss of billions of dollars in deposits also raises questions about the long-term stability of the crypto market and its ability to sustain financial institutions. The California Department of Financial Protection and Innovation is monitoring the situation, and the Federal Reserve has declined to comment. The liquidation process will involve Centerview Partners LLC acting as its financial advisor, Cravath, Swaine & Moore LLP as its legal advisor, and Strategic Risk Associates to provide transition project management assistance.
Silvergate’s Journey in the Crypto Industry
Silvergate became a regional bank in 1996, but it wasn’t until 2014 that CEO Alan Lane chose for the company to begin servicing crypto clients. The company carved out a niche for itself by giving banking access to a growing number of crypto startups, which evolved into the SEN. Following the bankruptcy of crypto exchange FTX, Silvergate’s total deposits and assets fell, leading to its capital relative to its assets shrinking by half.
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