Shares of the California bank fell nearly 44% on Wall Street after it announced it was closing.
It is a collapse that will cost many investors dearly.
Californian bank Silvergate announced its bankruptcy on March 8, confirming that its bet on the cryptocurrency industry had turned into a nightmare.
The company “announced its intention to liquidate operations and voluntarily liquidate the bank in an orderly manner and in accordance with applicable regulatory processes,” it said in a press release on March 8.
He continued: “In light of recent industry and regulatory developments, Silvergate believes that an orderly winding down of banking operations and a voluntary liquidation of the bank is the best way forward.”
silver door (AND) – Get a free reportwhich used to be known as the cryptobank, is the first US bank to collapse since 2020, according to the Federal Deposit Insurance Corporation (FDIC), a guarantor of bank depositors.
Shares fell 44%
The announcement, made after the close on Wall Street, was followed by Silvergate shares tumbling nearly 44% to $2.76 in after-hours electronic trading. Silvergate shares are down 72% this year, based on the March 8 closing price of $4.91.
While Silvergate has indicated it wants to return deposits to clients, investors are unlikely to recoup their investments.
The Silvergate crash shocked the cryptocurrency market, even though the latter was already prepared for this eventuality. Bitcoin prices fell 1.5% to $21,799.80 over the past 24 hours, while Ether prices fell 1.1% to $1,542.70, according to CoinGecko. Overall, the cryptocurrency market was down 1.5% at $1.05 trillion.
The bank was where most of the big crypto companies went, because traditional banks did not want to do business with them, due to warnings from regulators who consider the crypto industry a risky sector.
“Silvergate demonstrates what can happen when a bank is too exposed to a sector,” said Sheila Warren, executive director of the Crypto Council for Innovation. “Dissuading banks from providing deposit accounts only exacerbates this problem by creating fewer options for any sector to obtain banking services. The problem is not about crypto, but about concentration risks.”
The La Jolla, California-based bank’s defeat comes under pressure from regulators, particularly the Department of Justice (DoJ), which has opened an investigation into its business dealings with the empire of former cryptocurrency king Sam. Bankman-Fried. , charged with twelve counts of fraud. Bankman-Fried’s empire consisted of failing cryptocurrency exchange FTX and its sister company Alameda Research.
The fate of Silvergate linked to FTX
The firm “is currently reviewing certain pending regulatory and other inquiries and investigations with respect to the company,” Silvergate told investors on March 1.
That day, the stock fell nearly 58%.
Silvergate was established in 1988. Initially, the bank specialized in lending to industrial clients, and at that time also offered loans for residential and commercial real estate.
In 2013, the bank began courting crypto companies, when traditional banks were reluctant to do so, due to the opacity that prevailed in the sector. Silvergate thus became the crypto bank.
In 2019, the company made its initial public offering, promising a complete refocus on an industry that was experiencing a renaissance at the time. As of September 30, Silvergate had $11.9 billion in digital assets in custody.
But the bankruptcy of FTX and Alameda on November 11 scared off customers. Thus, the bank reported only $3.8 billion in digital assets in custody as of December 31. FTX was one of Silvergate’s big clients. After his warnings on March 1, Silvergate’s few remaining crypto clients also fled.
