Silvergate Bank, which had been a key part of the cryptocurrency world, said it was closing and giving back deposits. The bank’s holding company, Silvergate Capital Corporation, said in a press release that it decided to close “in light of recent industry and regulatory developments.”
It’s been clear for a while that the company and some of its most well-known clients, like FTX and Genesis, were having trouble. In January, the company’s earnings report showed that its customers took out $8.1 billion, which cost the company $1 billion in one quarter. Then, on March 1, it filed a document saying that its finances were even worse than the quarterly report had shown.
There are a lot of worries about what the crypto world will be like without Silvergate, especially about where companies will get cash. In this explainer, my colleague Elizabeth Lopatto did a great job of summing up a lot of them.
One of the biggest worries is that crypto companies might use banks that aren’t as well-regulated for their banking needs. This could make the space even riskier for everyone. In other words, if they can’t do business with a bank that follows the rules, they may have to find one that doesn’t.
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As for the next steps for the bank, it’s liquidating “in an orderly manner and in accordance with applicable regulatory processes” and is “considering how best to resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets.”
Dylan LeClair takes to Twitter to break the news on Silvergate’s latest developments – read all about it
Silvergate Capital to shut down operations and liquidate the bank. $SI pic.twitter.com/nxT2sO8sD5
— Dylan LeClair 🟠 (@DylanLeClair_) March 8, 2023
It also shut down its Silvergate Exchange Network earlier this month. This was a way for cryptocurrency exchanges like Coinbase, Gemini, and Kraken to move money between themselves and other institutions.
As all of this was happening, companies like Coinbase, Crypto.com, and Paxos started moving away from the bank. Even the stablecoin Tether used the chance to get away from the institution. It didn’t have many friends, and the government was watching it closely because of its role in the FTX meltdown.
When Silvergate goes down, lawmakers will almost certainly look into it, especially those who are worried that crypto will spread to the traditional financial sector.
“Today we are seeing what can happen when a bank is overreliant on a risky, volatile sector like cryptocurrencies,” said Senator Sherrod Brown (D-OH), who is the chair of the Senate Banking, Housing, and Urban Affairs Committee. “I’ve been concerned that when banks get involved with crypto, it spreads risk across the financial system and it will be taxpayers and consumers who pay the price.”
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