Crypto-friendly bank Silvergate to liquidate after FTX implosion

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Silvergate Capital Corporation, the holding company of the crypto-focused Silvergate Bank, announced on Wednesday its intention to wind down operations and voluntarily liquidate its banking unit.

The move came days after Silvergate shocked the industry with news that it was facing a financial crisis. The institution, which was one of the few banks that acted as an intermediary in institutional crypto, is another victim of the “crypto winter” after the implosion of FTX, which used the bank to transfer customer funds.

The bank was founded three decades ago in California as a small local lender, but in recent years it had risen to become a key player in the crypto industry. Fortunes also rose and fell with market volatility. As token prices boomed, deposits on Silvergate increased from around $2 billion in 2020 to over $10 billion in 2021. But by the end of 2022, deposits fell to $6.3 billion, a drop of over 50% from just three months earlier .

At the time of FTX’s collapse last fall, Silvergate tried to reassure investors and regulators that its exposure to the digital asset exchange was limited.

“As of September 30, 2022, Silvergate’s total deposits from all digital asset accounts were $11.9 billion, of which FTX represented less than 10%. Silvergate has no outstanding loans to or investments in FTX, and FTX is not a custodian of Silvergate’s bitcoin-collateralized SEN Leverage Loans To be clear, our relationship with FTX is limited to deposits,” Alan Lane, Silvergate’s chief executive, wrote in a statement in November.

But the government looked elsewhere. US prosecutors in the Justice Department’s fraud unit were investigating Silvergate’s dealings with FTX and Alameda Research, Bloomberg reported in February.

The closure of Silvergate will deal a major blow to how money moves in and out of the crypto world. On March 3, the bank announced that it would shut down the Silvergate Exchange Network (SEN), its crypto payment network that enabled dollar transfers between investors and crypto exchanges 24/7. The volatile nature of cryptocurrencies means that very few financial institutions want to touch crypto.

It seems that at least Silvergate’s customers are getting their deposits back. As the company said in its latest statement:

“In light of recent industry and regulatory developments, Silvergate believes that an orderly liquidation of the bank’s operations and a voluntary liquidation of the bank is the best way forward. The bank’s liquidation and liquidation plan includes full repayment of all deposits. The company is also considering how one can best resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets.”