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Crypto-friendly lender Silvergate Capital (New York Stock Exchange: YES) is falling apart and that is “definitely not good for the crypto industry,” said Konstantin Shulga, CEO and co-founder of institutional crypto liquidity marketplace Finery Markets.
Silvergate (SI), the bank which had ties to Sam Bankman-Fried’s failed FTX crypto exchange (USD-FTT), has become the latest victim of the persistent market downturn, after revealing plans to relax operations and liquidate voluntarily.
Prior to that decision, the 35-year-old San Diego, California-based company, which posted a $1 billion loss in the fourth quarter, said about two weeks ago that it was forced to assess its ability to continue as a going concern. , prompting an exodus among its institutional clients, including Coinbase Global (COIN) and Galaxy Digital (OTCPK:BRPHF). Silvergate (SI) then said it would discontinue the Silvergate Exchange Network, its crypto payments platform, which was implemented in 2018 to enable 24/7 instant transfers between market participants and cryptocurrency exchanges and quickly became in one of its main growths. drivers
What was once a $200 share in late 2021, the same year Bitcoin (BTC-USD) hit all-time highs, is now less than $3 as Silvergate (SI) saw its clients rush to withdraw money from the bank after November. collapse of FTX (FTT-USD) and its sister trading company Alameda Research, which allegedly had accounts at Silvergate. The Justice Department was said last month to begin investigating Silvergate’s relationship with the Bankman-Fried crypto empire.
Things could have been even worse if he hadn’t had $4.3 billion in short-term advances from the Federal Home Loan Bank at the end of 2022, on top of the roughly $4.6 billion he had in cash. As it begins the process of phasing out its banking operations, “it is difficult to know what the final outcome and timeline of this process will be,” KBW analyst Michael Perito wrote in a note to clients last week.
Before its demise, Silvergate (SI) was a key player in providing cryptocurrency-related banking services, but the financial contagion effects of the FTX (FTX-USD) crash tarnished its once-powerful reputation.
“The case of Silvergate is special as the bank lost money not by making risky over-leveraged loans against crypto collateral (as in the case of the 3AC, Celsius or FTX collapse), but by doing regular banking,” Shulga told ICS- digital in a recent interview, referring to the additional securities it has sold at a loss so far in 2023 to finance the massive run on deposits.
In turn, “a downward spiral ensued with rapidly worsening capital adequacy ratios, leading to more clients withdrawing funds,” it added. “Definitely not good for the crypto industry, and this could potentially mean some tendency for crypto to move outside of the US, at least until a more comprehensive regulatory framework is put in place in the US. of banking relationships for crypto companies as the industry stays here no matter what happens to Silvergate.”
While Seeking Alpha contributor The Digital Trend expects ‘drastic’ effects on the crypto space from the fall of Silvergate (SI), ‘we know how resilient the crypto space and community are, there will be a rise from the ashes and’ lanes’ alternative pay. will be searched”.
