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Silvergate bank collapses amidst market turmoil

The bank has been unable to recover from damages sustained by the FTX collapse.

Crypto-friendly Silvergate bank will be “winding down” operations and voluntarily liquidating, its holding company has announced. The liquidation comes five days after the bank discontinued its widely-used crypto payments network, Silvergate Exchange Network (SEN), after facing increasing pressure from US regulators.

In the statement, Silvergate’s holding company, Silvergate Capital Corporation, said: “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 wind down plan will include full repayment of all deposits. The bank has employed Centerview Partners LLC as financial advisors, and Cravath, Swaine & Moore LLP as legal advisors and strategic risk associates to assist with the process.

A week before announcing the liquidation, Silvergate requested to delay filing its annual 10-K report after facing questions from independent auditors over its figures. Within 24 hours, the Silvergate stock price plummeted by 57.72%, raising fresh fears of a bank run.

Read more: Silicon Valley Bank collapses, marking the biggest bank failure since 2008 crisis

Is the collapse a black swan?

Definitely not. While the Biden administration has taken a surprisingly aggressive approach to crypto regulation, Silvergate’s troubles began in November 2022, following the collapse of crypto exchange FTX – a collapse that some now term one of the “biggest frauds in history”.

FTX had an account with Silvergate, and while the bank insisted that it has adequate liquidity, it failed to shake off short sellers following the FTX fallout.

On December 6, Senators Elizabeth Warren, Roger Marshall, and John Kennedy demanded an explanation from Silvergate regarding their ties with FTX. They wrote: “Your bank’s involvement in the transfer of FTX customer funds to Alameda reveals what appears to be an egregious failure of your bank’s responsibility to monitor for and report suspicious financial activity carried out by its clients.”

By late December 2022, Silvergate’s crypto-related deposits dropped to $3.8 billion from approximately $11.9 billion at the end of September. 

Silvergate operated for more than 30 years, pivoting itself as an important crypto bank. The company had nearly 500 crypto clients in November, climbing up to 750 a year later. The collapse is undoubtedly a huge blow to the crypto industry.

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