Crypto Bank Silvergate Decides To Shut Down Operations

Updated: 09 March 2023

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The California-based crypto-friendly bank Silvergate has announced that it will be shutting down its operations and liquidating the bank assets.

This news has sent shockwaves across the crypto industry, as investors are worried about what lies next for them. Silvergate’s announcement comes after months of scrutiny and investigation that led to following the bank and its close ties with FTX, and its collapse.

However, with the fall of Silvergate bank, the crypto industry might be looking at a new crisis. Or is it something that can be easily resolved? Here’s everything that one can know about Silvergate Bank and what lies for it ahead.

What is Silvergate Capital?

Silvergate Capital was a California-based community bank that launched in 1988. However, it was only a decade ago that the bank decided to pivot into cryptocurrencies. It decided to provide traditional financial services to crypto companies, including exchanges like the now-defunct FTX.

It was at the time when many bigger banks decided to steer clear from cryptocurrencies, giving Silvergate the real first-mover advantage.

One of its primary services was the Silvergate Exchange Network, which is an instant payment platform that enables its clients to send USD to any Silvergate bank account at any point in time. This was another advantage over traditional banks which are usually closed during weekends, or nights.

While Silvergate, itself, didn’t deal in cryptocurrencies, most of its major clients used to do the same. Hence, with the collapse of the crypto markets in 2022, the bank was hard hit.

What Exactly Happened With Silvergate Capital?

As per several reports, crypto bank Silvergate has announced to liquidate its financial institution and reduce its operations. Silvergate began its voluntary liquidation on Wednesday; it was announced by the state’s Department of Financial Protection and Innovation.

The company further said in an official statement that it is believing in an “orderly wind-down of the bank operations and a voluntary liquidation of the bank is the best path forward”. The statement further states that the plan also “includes full repayment of all deposits”.

This announcement by the DFPI, sent the bank’s share price to a record low, falling 5.76% on Wednesday to $4.91, leading to a 71.56% drop from the beginning of 2023.

Earlier this week, Silvergate bank announced that it also had to delay filing its annual 10-K form because of the independent auditors questioning their operations. In the very same form, under another section, Silvergate also mentioned it was facing bank regulator inquiries, a U.S. Department of Justice investigation, congressional scrutiny, and concerns about it being a ‘going concern’ over the next year.

Amidst all of this, some of the closest partners of Silvergate, including Circle, Galaxy Digital, and Paxos, have decided to distance themselves from the Bank. In fact, Coinbase announced that it is putting a hold on its relationship with Silvergate stating its concerns pertaining to the Bank’s capital. This means that Coinbase will no longer rely on the bank’s services to initiate and facilitate payments.

Why Does it Matter?

The fall of Silvergate matters because it affects a large number of stakeholders, In just a span of a year, Silvergate Capital’s stock price fell by almost 95% from its November 2021 high.

Things quickly changed for Silvergate Capital after the bank was involved in the FTX collapse, and reported a $1 billion loss. Further, in January 2023 a group of Senators sent a letter to Silvergate Bank, questioning their role in the FTX collapse.

With Silvergate announcing shutting down its operations, it seems likely that the bank might as well file for bankruptcy. If this happens, the Federal Deposit Insurance Corporation (FDIC) might come into the picture to safeguard the interests of the bank’s investors.

Moreover, it’s still unclear whether any other bank would like to buy Silvergate as of now.

What’s Next For Crypto Then?

The situation with Silvergate is exactly what the crypto industry does not need at the moment. Before finally announcing the cessation of its operations, Silvergate bank already had its most prominent crypto clients leave them.

While there still is a sliver of hope, that the investors might be able to bail the bank out, that is yet to be seen.

For now, the crypto firms and projects will have to look for other banks. While some firms might be able to do it, others might find it difficult to do. The newer crypto startups have always found it difficult to gain investment and banking facilities due to the market volatility, and this will make it further more difficult for them.

Moreover, the regulatory stringency on crypto startups, banks, and other institutions. Stronger regulation will only lead to a more closely watched crypto ecosystem, which is exactly what blockchain was once against.

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