Silvergate, the American cryptocurrency-focused lender, will shut down its operations after it was hit by customer withdrawals following the collapse of cryptocurrency exchange FTX.
The California-based bank had warned last week that it was “less than well capitalized” after depositors demanded their money back, adding that it was evaluating its ability to operate as a going concern.
Silvergate said a voluntary liquidation of the bank was “the best way forward” in light of “recent industry and regulatory developments.” The FTX failure sparked renewed volatility in the crypto markets. Silvergate also revealed that he was under investigation by the United States Department of Justice.
Its drawdown and liquidation plan includes the full refund of deposits, the bank added. Silvergate reported a $1bn (£840m) loss for Q4 2022 after investors rushed to withdraw more than $8bn in deposits, forcing it to incur losses by selling assets for cover the cost of withdrawals.
Multiple partners of the bank, including Coinbase, a cryptocurrency exchange, and Galaxy Digital, a cryptocurrency-focused financial services company, severed ties with Silvergate last week. FTX and its affiliated trading arm, Alameda Research, had Silvergate accounts.
After Silvergate’s statement, Coinbase said it had no corporate or customer cash at the lender. Changpeng Zhao, chief executive of Binance, the world’s largest cryptocurrency exchange, said his firm had no asset losses on Silvergate.
Founded in 1988, Silvergate ventured into crypto in 2013. The bank had also operated a mortgage escrow business, but announced in December that it was closing that division, citing the environment of rising interest rates and declining volumes. mortgages.
Last week, the bank discontinued the Silvergate Exchange Network (SEN), its crypto payments platform and one of its most popular offerings. That network allowed round-the-clock transfers between investors and cryptocurrency exchanges, unlike traditional bank transfers, which can often take days to clear.
While contagion risks are minimal, given that Silvergate has said it will pay depositors and has outstanding loans, the SEN loss is disappointing, said Ram Ahluwalia, chief executive of Lumida Wealth, an investment adviser that specializes in assets. digital.
“It’s more of a strategic loss of critical infrastructure for cryptocurrencies,” he told Reuters.
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Federal prosecutors in Washington are investigating the company and its dealings with FTX and Alameda Research. In January, three US senators asked Silvergate for details about its risk management and FTX.
More than $1 trillion of value was wiped from the crypto sector in 2022 as rising interest rates affected appetite for riskier assets.
After rapid growth in 2020 and 2021, bitcoin, by far the most popular cryptocurrency, fell more than 60% last year, putting pressure on the digital asset industry. Bitcoin fell below $16,000 after the FTX crash in November, but has since recovered to around $21,000.
