The San Diego-based cryptocurrency bank Silvergate Capital (SI), investigated by the United States authorities, has announced its closure, sending shockwaves across a market on edge since the FTX exchange’s demise in November 2022.
The business said, “Silvergate feels that an orderly wind-down of Bank activities and a voluntary liquidation of the Bank is the best course ahead given recent industry and regulatory developments.”
Following the announcement, shares of the California-based crypto bank fell more than 40% in extended trade.
All deposits will be fully repaid, Silvergate stated, while adding that all other deposit-related services would continue to be offered as the business goes through the process of shutting down operations. Any additional alterations will be communicated to customers.
The U.S. Department of Justice and other authorities’ ongoing investigations caused Silvergate to postpone submitting its annual report, which caused the company’s shares to drop as much as 45% at the beginning of March 2023. Due to this, Silvergate lost the support of two big companies in the cryptocurrency industry: Coinbase and Paxos.
Investigations may be partly prompted by the Bank’s connections to Alameda Research and the defunct crypto exchange FTX. In addition, Silvergate Bank said it would also stop operating the Silvergate Exchange Network (SEN) on its website.
After the FTX crash in November 2022, Silvergate’s shares have lost more than 80% of their value. Following the collapse of FTX, the Wall Street Journal reported in January 2023 that Silvergate’s clients withdrew USD 8.1 billion in digital deposits, forcing the Bank to sell off assets at a loss to recoup its losses.
The United States’ Federal Deposit Insurance Corp official had even met the Silvergate officials. Among the discussed options was finding crypto-investors to help shore up the bank’s liquidity amid its mounting losses. But a desperate round of calls to potential investors failed, with no firm willing to shoulder the burden of associating with the beleaguered bank.
As per Silvergate insiders, who spoke with Bloomberg, the bank’s decision to wind down and voluntarily liquidate capped months of turmoil at the bank stemming from its FTX ties. The downfall of the Sam Bankman-led crypto exchange, followed by allegations of fraud, placed a harsh spotlight on Silvergate simultaneously igniting a regulatory crackdown.
Silvergate buckled under the strain, as it posted USD 1 billion of losses in the 2022 fourth quarter and continued to bleed more capital in 2023. Silvergate was also forced to delay its annual report, thus raising questions about its ability to stay in business.