Silvergate Capital, a California-based bank, has announced that it will begin the process of “closing” its operations and voluntarily liquidating its bank following a cryptocurrency market crash that has seen billions of deposits leave the bank in recent months. In a regulatory statement, the bank said it believes the bank’s voluntary liquidation is the best course of action given recent industry and regulatory developments. The bank also stated that its “liquidation” and liquidation plan included the full repayment of all deposits and that it was considering how best to settle claims and preserve the residual value of its assets, including proprietary technology and its tax assets.
What is Silvergate Crypto?
Silvergate Capital Corporation is a La Jolla, California-based bank holding company that provides innovative financial infrastructure solutions and services to players in the digital currency industry. It operates as a state-registered commercial bank that offers banking products and services to corporate clients in the fintech and cryptocurrency sectors. Silvergate Bank, a subsidiary of the company, is one of the few banks in the US that provides banking services to the cryptocurrency business. The bank has built a reputation for offering 24/7 fiat deposits and exits for cryptocurrency exchanges, institutional investors, and other crypto-related businesses.
Cryptocurrency crash and Silvergate losses
Silvergate Capital’s announcement comes in the wake of the collapse of cryptocurrency exchange FTX at the end of 2022, leaving Silvergate in a loss of almost $1 billion and total client deposits in digital assets falling to $3.8 billion from $11.9 billion in the fourth quarter. . After that, cryptocurrency-related businesses using the bank, such as Coinbase, Paxos, Galaxy Digital, and others, moved away from Silvergate, accelerating further withdrawals. The company suspended the Silvergate Exchange Network (SEN) on Friday afternoon, one of two platforms that provided cryptocurrency companies with access to U.S. banking transactions after business hours.
Consequences of Liquidation and Regulatory Issues
The Silvergate liquidation raises further questions about whether US banks will turn their backs on the digital asset industry by restricting access for crypto firms. The collapse of the bank and the loss of billions of dollars in deposits also raise questions about the long-term stability of the crypto market and its ability to support financial institutions. The California Department of Financial Protection and Innovation is monitoring the situation, while the Federal Reserve declined to comment. The liquidation process will involve Centerview Partners LLC as financial advisor, Cravath, Swaine & Moore LLP as legal counsel, and Strategic Risk Associates to assist in the management of the transition project.
Silvergate’s path in the crypto industry
Silvergate became a regional bank in 1996, but it wasn’t until 2014 that CEO Alan Lane chose the company to serve crypto clients. The company has carved a niche for itself by providing banking access to a growing number of crypto startups that have evolved into SEN. Following the bankruptcy of cryptocurrency exchange FTX, Silvergate’s total deposits and assets plummeted, causing its capital to halve its assets.
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