Silvergate Capital Corporation, the crypto-focused holding company of Silvergate Bank, on Wednesday announced plans to cease operations and voluntarily liquidate the banking unit.
The move came days after Silvergate shocked the industry by announcing it was facing a financial crisis. The institution, which was one of the few banks to have acted as a middleman in the institutional crypto space, is yet another victim of the “crypto winter” following the implosion of FTX, which used the bank to transfer customer funds.
The bank was founded three decades ago in California as a small local lender, but in recent years has grown into a key player in the crypto industry. His fortune also rose and fell with market volatility. As token prices exploded, Silvergate’s deposits grew from around $2 billion in 2020 to over $10 billion in 2021. But by the end of 2022, its deposits had dropped to $6.3 billion. , down more than 50% from just three months earlier.
At the time of FTX’s collapse 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 the custodian of Silvergate’s bitcoin-backed SEN leveraged loans. To be clear, our relationship with FTX is limited to deposits,” Silvergate CEO Alan Lane wrote in a statement in November.
But the government looked elsewhere. US prosecutors with the Justice Department’s Fraud Unit were investigating Silvergate’s dealings with FTX and Alameda Research, Bloomberg reported in February.
The closure of Silvergate will be a major blow to the way money enters and exits the crypto world. On March 3, the bank announced that it would be terminating the Silvergate Exchange Network (SEN), its crypto payments network that enabled investor-to-investor dollar transfers and 24/7 crypto exchanges. The volatile nature of cryptocurrencies means that very few financial institutions want to touch crypto.
It looks like 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 wind-down of the Bank’s operations and a voluntary liquidation of the Bank is the best way forward. The Bank’s liquidation and liquidation plan provides for the full repayment of all deposits. The Company is also considering how best to resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets.
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