The parent company of cryptocurrency-focused Silvergate Bank, Silvergate Capital Corporation. announced its intention to wind down operations and voluntarily liquidate the banking unit.
The Corporation made this public on Wednesday days after Silvergate shocked the industry by publicly stating that it was in going through financial trouble. The bank, which was one of the few banks that acted as an intermediary in the institutional crypto space, is yet another victim of the “crypto winter” following the implosion of FTX, which used the bank to transfer customer funds.
The bank which was founded three decades ago in California as a small local lender has in recent years risen to become a recognized key player in the crypto industry. However, its fortune also fluctuated alongside the crypto market volatility. Deposits at Silvergate increased from around $2 billion in 2020 to more than $10 billion in 2021 as token prices went up. However, by the end of 2022, its deposits had dropped to $6.3 billion, a drop of more than 50% from just three months earlier.
When FTX went down 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 customers totaled $11.9 billion, of which FTX represented less than 10%. Silvergate has no outstanding loans to nor investments in FTX, and FTX is not a custodian for Silvergate’s bitcoin-collateralized SEN Leverage loans. To be clear, our relationship with FTX is limited to deposits,” Alan Lane, Silvergate’s CEO, wrote in a statement in November.
However, the government looked elsewhere. According to Bloomberg, US prosecutors in the Justice Department’s fraud unit were looking into Silvergate’s dealings with FTX and Alameda Research in February.
The shutdown of Silvergate will have a significant impact on how money moves in and out of the crypto world. On March 3, the bank announced the closure of the Silvergate Exchange Network (SEN), its crypto payments network that enabled dollar transfers between investors and crypto exchanges around the clock. Due to the volatile nature of cryptocurrencies, very few financial institutions want to invest in them.
In its recent statement, it seems like Silvergate’s Customers are at last getting their deposits back:
“In light of recent industry and regulatory developments, Silvergate believes that an orderly wind-down of Bank operations and a voluntary liquidation of the Bank is the best path forward. The Bank’s wind-down and liquidation plan includes full repayment of all deposits. The Company is also considering how best to resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets.”