Hey there! Have you heard the big news that just hit the crypto industry? Silvergate Capital, one of the major players in providing banking services to the crypto industry, has announced that it's winding down operations and liquidating its bank. This news caused the company's stock to drop by more than 36% in after-hours trading.
Silvergate has been an essential bank for crypto companies, alongside New York-based Signature Bank, but it only has just over $11 billion in assets compared to Signature Bank's assets of over $114 billion. The company has shared a liquidation plan ensuring that all deposits will be fully repaid, but there's no mention of how claims against the business will be resolved.
This announcement follows Silvergate's discontinuation of its payments platform, Silvergate Exchange Network (SEN), just last week, which was one of its core offerings. All other deposit-related services remain operational as the company winds down. Customers will be notified should there be any further changes.
The company recently delayed filing its annual 10-K for 2022 while it sorts out the "viability" of its business. The delay was partly due to an imminent regulatory crackdown, including a probe already underway by the Department of Justice, along with Congressional inquiries and investigations from banking regulators such as the Federal Reserve and the California Department of Financial Protection and Innovation.
Coinbase and Galaxy Digital, two big crypto companies, raced to cut ties with Silvergate last week after the bank warned that it was unsure whether it could stay in business. Silvergate has been struggling for months, with layoffs of 40% of its workforce in January and a nearly $1 billion net loss in the fourth quarter.
To cover the withdrawals, Silvergate had to sell $5.2 billion dollars of debt securities and went to the Federal Home Loan Bank for an additional $4.3 billion. This loan has drawn attention from lawmakers like Sen. Elizabeth Warren, D-Mass, who expressed concern about the risk this introduces into the traditional banking system.
The company has now announced its decision to end operations, and its stocks have been steadily falling for over a year, reaching a record low of $4.91 on Wednesday, marking a 71.56% drop from the beginning of the year. Silvergate, which was founded in 1988, became a prominent figure in the blossoming crypto market by taking on clients early into the crypto boom and bringing its crypto assets to $2.1 billion in September 2020. However, it slowly became exposed to the loosely-regulated market’s vulnerabilities.
Silvergate is also being investigated by the Justice Department over its dealings with FTX and its sister trading firm Alameda Research, although the bank has not been accused of fraud or any wrongdoing. We'll keep you updated on this developing story, so stay tuned for more news from the crypto world!
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