Silvergate Capital Corp, a bank that focuses on crypto, has announced its plans to wind down operations and undergo voluntary liquidation. The decision was made following the bank’s significant losses due to the collapse of the crypto exchange FTX. The announcement led to a 35% decline in the bank’s shares during after-hours trading.
Last week, the company warned that it was assessing its ability to operate as a going concern. It revealed that it had sold additional debt securities this year at a loss, and further losses could mean the bank is not well capitalized. As a result, the decision was made to close the bank.
This move is a significant blow to Silvergate, which is based in La Jolla, California, and is known as one of the favored banks in the crypto industry. It underscores the impact that the downfall of FTX, which filed for bankruptcy in November, has had on the digital asset industry. FTX was unable to cover customer withdrawals, leading to its collapse and causing significant losses for Silvergate.
The Best Way Forward?
In a statement, Silvergate stated that the decision to close its bank was the best way to move ahead in light of recent events in both the industry and the regulatory environment. According to the bank, the plan for its winding down and liquidation involves the complete refund of depositors. This week, a number of Silvergate’s business partners, including prominent companies like Coinbase Global Inc. and Galaxy Digital, cut their ties with the financial institution.
Following Silvergate’s announcement, crypto exchange Coinbase stated that it does not store customer or corporate funds at Silvergate, while the CEO of Binance, Changpeng Zhao, stated that the company did not sustain any losses due to Silvergate’s operation. Investors rushed to remove more than $8 billion in deposits, which resulted in Silvergate reporting a loss of $1 billion for the fourth quarter.
The Silvergate Exchange Network, Silvergate’s crypto payments network and one of the company’s most popular offerings, was shut down by the company a week ago. This network made it possible for investors and cryptocurrency exchanges to send and receive funds around the clock, in contrast to the usual method of sending funds via bank wire, which might take several days to settle.
Ram Ahluwalia, CEO of Lumida Wealth, an investment advisor focused on digital assets, expressed disappointment over the loss of the Silvergate Exchange Network, despite the low risk of contagion due to the assurance from Silvergate to repay depositors and the presence of performing loans. Overall, it may have consequences for the way in which traders conduct transactions in the future.