Silvergate faces $8 billion crypto-related withdrawals and must sell $52 billion assets
Silvergate, which provides services to the cryptocurrency sector, recently faced the challenge of handling withdrawals of over $8 billion (£6.7bn) of crypto-related deposits from its clients. The majority of the withdrawals took place in Q4 2022 due to the collapse of the FTX exchange, which severely impacted the entire cryptocurrency ecosystem. The US bank had to liquidate $5.2 billion of its assets and faced an associated $718 million loss from doing so. This action was taken to protect the company’s balance sheets and to maintain a highly liquid balance sheet. Alan Lane, CEO of Silvergate, attributed the withdrawals to a level of “crisis of confidence” within the ecosystem, resulting in a reduction of risk towards digital assets.
Silvergate’s NYSE-listed shares fall by over 40% following a longer-term decline of nearly 90%
Silvergate, once a small community bank in California, evolved into one of the primary providers of services to companies struggling to engage with traditional financial providers during the crypto boom. As of late, however, the NYSE-listed share prices of Silvergate have taken a big hit, falling by over 40% after experiencing a longer-term decline of almost 90% during the previous year. Despite this, the company keeps a cash liquidity position that’s in excess of its digital asset-related deposits.
Alameda Research, the hedge fund behind FTX’s collapse, one of Silvergate’s largest customers
One of Silvergate’s sizeable customers was the hedge fund, Alameda Research, which was set up by Sam Bankman-Fried and was the primary cause behind FTX’s downfall. Alameda’s Silvergate bank account was used by FTX to receive incoming wire transfers for the exchange, but the money ultimately remained in Alameda’s accounts, instead of being transferred to FTX resulting in an $8bn hole in FTX’s books. The missing money left FTX unable to fulfil customer withdrawals during a run on the exchange in November. Silvergate was eventually forced to sell its assets to accommodate lower deposit levels and to maintain liquidity. Given these events, the Federal Reserve, FDIC, and Office of the Comptroller of the Currency in the US, jointly issued a statement indicating that holding or issuing cryptocurrency is likely to be inconsistent with safe and sound banking practices.
Read More Here https://www.theguardian.com/technology/2023/jan/05/silvergate-forced-to-cover-8bn-worth-of-crypto-related-withdrawals
