Silvergate Capital Corporation Announces Voluntary Liquidation After Crypto Industry Meltdown
In light of recent industry and regulatory developments, Silvergate Capital Corporation announced Wednesday that it will be winding down operations and voluntarily liquidating its bank.[0] All deposits will be fully repaid as part of the Bank's wind down and liquidation plan.[1]
The decision to wind down comes after the crypto industry’s meltdown sapped the company’s financial strength, sending shares plunging. The stock of Silvergate has experienced a 97% drop from its peak in November 2021, a decrease that mimics the general crypto market.[2] In 2022, the crypto industry was left reeling from a series of bankruptcies, scandals, and the most shocking incident of all–the collapse of Sam Bankman-Fried's business empire in November.[1]
Silvergate is renowned as the bridge between the crypto world and traditional banking, referred to as the “payment rails” of crypto. Silvergate has been utilized by major crypto companies to facilitate crypto-related transactions. The bank has lost many of its clients and its deposits have been decreasing, leading to its abandonment.[3] In the last quarter of 2022, crypto-related deposits decreased by 68%.[3]
For the fourth quarter of 2022, Silvergate reported a net loss of close to $1 billion, attributable to common shareholders.[4] Silvergate sold debt securities from its balance sheet, leading to losses of $718 million in order to meet customers' withdrawals.[5] Silvergate has indicated that these losses could lead to the bank not having sufficient capital.[3]
Elizabeth Warren, a Senator, expressed her sorrow at Silvergate's failure, describing it as “disappointing, but predictable”, whilst also imploring regulators to take action against the risks posed by crypto. Amidst numerous other crypto-related businesses going under, Silvergate's downfall has only further amplified the demand for better regulation of digital currencies.[1]
Silvergate declared that they had taken on Centerview Partners as their financial consultant and Cravath, Swaine & Moore LLP as their legal counsel.[6] It is disappointing, yet predictable, that Silvergate Bank, which is the bank of choice for crypto, has failed. Galaxy Digital, a hedge fund, as well as Circle and Paxos, who issue stablecoins, have all taken the same action.[4]
Investors taking a short position on Silvergate Capital Corp., a crypto-friendly bank in difficulty, are generating a significant profit.[7]
0. “Silvergate downfall sparks debate over whose fault it actually was” Cointelegraph, 9 Mar. 2023, https://cointelegraph.com/news/silvergate-downfall-sparks-debate-over-whose-fault-it-actually-was
1. “Crypto-friendly lender Silvergate collapses” CNN, 9 Mar. 2023, https://www.cnn.com/2023/03/08/business/silvergate-winds-down-crypto/index.html
2. “Silvergate Contrarian Bet Soured for Peter Thiel-Backed Block.one, Bill Miller” Yahoo News, 9 Mar. 2023, https://news.yahoo.com/silvergate-contrarian-bet-soured-peter-011437091.html
3. “Silvergate Capital: The Latest Crypto Casualty (NYSE:SI)” Seeking Alpha, 9 Mar. 2023, https://seekingalpha.com/article/4585876-silvergate-capital-latest-crypto-casualty
4. “Silvergate Capital shares drop 57% after the crypto bank delays its annual report” CNBC, 2 Mar. 2023, https://www.cnbc.com/2023/03/02/silvergate-capital-shares-crater-after-the-crypto-bank-delays-annual-report.html
5. “Top US crypto bank Silvergate has gone into liquidation” Mashable, 9 Mar. 2023, https://mashable.com/article/silvergate-bank-crypto-liquidation-collapse
6. “Silvergate Capital plans to wind down its crypto-friendly bank; stock tanks” MarketWatch, 8 Mar. 2023, https://www.marketwatch.com/story/silvergate-capital-shares-tank-after-company-announces-plan-to-wind-down-bank-51618e7c
7. “Silvergate Short Bets Amass $780 Million Payday as Crypto Bank Sinks” Yahoo News, 8 Mar. 2023, https://news.yahoo.com/silvergate-short-bets-amass-780-163940609.html
