One of the main traditional banks supporting decentralized finance has just announced its liquidation. After a snowball effect, the American financial institution threw in the towel, leaving its customers on the floor and causing a wave of panic in the crypto ecosystem.
Nothing is going well in cryptos anymore. On the night of March 8 to 9, 2023, the death knell sounded for the Silvergate holding company. Its parent company Silver Capital announced overnight, in a statement “ its intention to reduce its activities and voluntarily liquidate Silvergate Bank “. For the first time in the short history of cryptocurrencies, the traditional banking sector is directly shaken by cryptocurrencies. In a few words, a hard reset was applied to the 35 years of senioritybillions in assets and 279 employees (end of 2021) of the banking establishment.
Domino effect in crypto
The Californian bank facilitated exchanges between FIAT currencies (dollars, euros, etc.) and cryptocurrencies through its Silvergate Exchange Network. Its payments network is now suspended. It was one of the few traditional banks to manage companies from the crypto world. Prior to the FTX bankruptcy, Silvergate had $12 billion on depositdistributed among 1,677 clients, mainly institutional. In December 2022, there were only $3.8 billion. 8 billion dollars have thus evaporated in a few weeks.
Silvergate had requested a delay for the publication of its annual results, ten days ago. A pessimistic index that professionals and individuals had noted. In the process the Coinbase, Crypto.com or Gemini platforms or even the companies managing Paxos or USDC turned away from Silvergate Bank. An icy wind from FUD (Fear, Uncertainty and Doubt) (fear, uncertainty and doubt) blew through the entire crypto sphere. Investors, burned by the Crypto Lunathere celsius liquidationthere fall of the FTX platform or recently bankruptcy of Genesis Trading rushed to withdraw their bet. As always in the stock market, psychology had a disastrous accelerator effect on an already weakened player. If that wasn’t enough for this dark series, the Silvergate Corporation share price had melted like snow in the sun for several weeks. Next to 85% in three months. The price of Silvergate had known its ATH (historic high) at $200 in 2021. From now on, the action is only worth 2.5 miserable dollars… The banking establishment had to sell its assets to cover billions of dollars withdrawn since the FTX platform scandal.
Dangerous liaisons between FTX and Silvergate
The ship taking on water from all sides, it was necessary to save the furniture. Silvergate preferred to do hara-kiri. Instead of leaving doubt and rumors about its activity, the financial institution declared its voluntary liquidation. The situation was untenable. Despite the liveliness of crypto players and American liberalism, the multiple missteps of decentralized finance companies have led to a regulatory alarm clock. Several members of Congress are calling for more regulation. This desire to regulate a sector by nature decentralized precisely worries investors.
And to top it off, an investigation was already conducted on Silvergate Bank to understand its ambiguous relationship with FTX. According to the Wall Street Journal, Sam Bankman-Fried (boss of FTX) would have deposited the equivalent of 1 billion dollars in this bank. Crypto players, however, seem to have learned lessons from the past. Rather than letting doubt drag on for weeks. Silver Group put the kibosh on it pretty early. In his press release, she promises that she was going to honor her clients by returning their deposits.
New Crypto Plunge
After a catastrophic year 2022 on the cryptocurrency market, the start of the year was shaping up to be much more optimistic. The price of Bitcoin, Ether and even altcoins were regaining strength. Small crypto investors were all hoping for an end to this bloody bear market. The most optimistic were betting on a bull run, a Bitcoin to $100,000 and more in a few months. Like a soufflé, hope quickly fell. Between gloomy macroeconomic indicators and increasingly restrictive institutions, the market is bearish. Taking a step back, the situation is not so dark.
Admittedly, thousands of small savers are suffering from the stock market steamroller. But we can also see this bankruptcy as thecleaning up the market. Not to mention cryptocurrency scams, there are still plenty of bad apples in web 3.0. “But whenever there’s a domino effect, the effects become less and less important. So overall I think the industry will be better. But there will be other meltdowns“. It’s not a saying of an Eastern philosopher, it’s what Changpeng Zao (better known on the acronym CZ), the boss of Binanceto Bloomberg TV in November 2022. Other players already impacted by this liquidation, Circle, and its USDC stablecoin, is exposed to $3.3 billion… The tremors in the crypto tectonics shouldn’t stop there. Wait and see.