Victim of bankruptcy wave: crypto bank Silvergate closes
The American bank Silvergate Capital wants to cease operations because its financial strength has been weakened by the tense situation in the crypto industry. That gave the bank for crypto services known on Wednesday. The company’s stock fell more than 40 percent.
Silvergate cites “recent industry-specific and regulatory developments” as the reason for going out of business. Orderly handling of business operations and voluntary liquidation is the best way forward, the company announcement continues.
The bank would like to pay out the deposits of its customers in full. A solution is now being sought to settle outstanding claims and preserve the residual value of the assets. The institute had already discontinued the Silvergate Exchange Network on March 3rd. All other services are to remain operational during the settlement.
The bank’s collapse had been apparent for weeks: as early as March 1, Silvergate disclosed to its investors that the company was examining whether it could continue in business. Business partners such as Coinbase, Circle, Payos or Galaxy Digital turned away.
Last week, Silvergate announced that it would not be able to submit the annual report to the US stock exchange regulator in time. The company’s capital position is too bad. There were also criminal investigations by the fraud unit of the US judiciary. It was about deals with the bankrupt crypto companies FTX and Alameda Research.
Silvergate’s stock is listed on the New York Stock Exchange. The share price collapsed after the announcement to investors on March 1st. While the stock traded at highs of over $220 in December 2021, it is currently worth less than $5 (Onvista, March 9).
The price of Silvergate stock on the NYSE performed similarly to the crypto market in mid-2022. In the past few weeks, the preliminary contractions of the settlement have put him under pressure. (Source: Onvista)
As investors paid record prices for Silvergate stock, sentiment in the cryptocurrency market was also upbeat. However, the start of a wave of bankruptcies in the crypto industry in the summer of 2022 is also putting pressure on the bank’s stock. For the past ten years, the bank, founded in 1988, has specialized in financial services in the crypto industry. When the large crypto exchange FTX surprisingly went bankrupt in November 2022, Silvergate also suffered. Customers withdrew large parts of their deposits in a bank run. The crypto bank’s deposits fell 68 percent to $3.8 billion.
Despite this, the bank had to continue to pay out, selling $5.2 billion in securities. US Senator Elizabeth Warren criticized Silvergate for taking out a billion-dollar loan from a building society. Warren feared risks to the traditional banking system.
The US Federal Reserve is also warning other banks about the high risk involved in doing business with the crypto industry. Insolvencies and lost customer funds are also fueling the discussion about stricter regulations for crypto transactions.
