Cryptocurrency Bank Silvergate Liquidates its Business

Silvergate is going to liquidate its business. The end of its trajectory comes after a quarter of a century as a bank and a decade as a ‘crypto’ bank. The change of strategy is now evidence of the results of having bet everything on the digital assets industry. A developing market, with inherent volatility, large doses of risk, and lack of regulation. FTX was one of its clients.

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Silvergate was not able to resist the crisis and the crash of its client FTX

“In light of recent industry and regulatory developments, Silvergate believes that an orderly wind-down of operations and a voluntary liquidation is the best way forward,” the company said in a statement.

The decision inevitably comes in the wake of its losses, its weak capitalization, and the deterioration of its investments and business. Last week, the company took stock of its situation and doubted its own continuity, in a notification to the SEC, and, a few days later, confirmed that its situation was unsustainable.

Silvergate has paid for this attrition in the stock market after losing 95% of its value in the last six months

The crash reflects how turbulent this period has been for the firm. First, investors began to abandon risky assets in the face of rising interest rates, which wiped millions of dollars from the industry last year. Then, the Terra USD stablecoin (UST) scam and its associated Luna token exploded. Then, the losses went to more. And the final blow came with the FTX bankruptcy and the crisis of confidence it triggered.

As a result, many of Silvergate’s clients decided to exit the market, leading to a “massive” outflow of funds, as the company acknowledged in its latest results presentation. In those accounts, from October to December 2022, its losses amounted to 1 billion dollars. Today, its capitalization is just $155 million, which contrasts with its balance sheet.

After the latest events, in which the company has acknowledged that its situation was hanging by a thread, its few remaining customers have ended up leaving. Coinbase or Paxos Trust have stopped using the SIlvergate platform. The ‘crypto’ bank now only has to return all the money from deposits and resolve the claims it has pending, as it has explained.

Silvergate started operating 35 years ago and at that time had industrial clients and was dedicated to granting loans for commercial and residential real estate

But ten years ago, the company was transformed to provide financial services to the crypto industry. It housed the deposits of these companies and provided them with a payment gateway for fiat money and cryptocurrencies.

Its niche worked for a few years, it benefited from the industry boom and the Bitcoin peak rage. However, Silvergate was taking a lot of risk by putting all its resources into a volatile industry such as crypto assets and, moreover, without any diversification. An approach that has been exposed when adversity has struck.

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(Featured image by Kanchanara via Unsplash)

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First published in elEconomista.es, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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