Silvergate Bank, which had been a cornerstone in the world of cryptocurrencies, announced that it will close and return deposits. In Press releaseThe bank’s holding company, Silvergate Capital Corporation, said it made the decision to close “in light of recent industry and regulatory developments.”
It’s been clear for a while that the company was struggling alongside some of its higher-profile clients like FTX and Genesis. In January, its earnings report revealed that it lost $1 billion in a quarter after its clients withdrew $8.1 billion. Then, on March 1, he filed a document saying his finances were even worse than he had shown the quarterly report.
There are several concerns about what the crypto landscape will look like without Silvergate, especially when it comes to where companies will turn for cash. My colleague Elizabeth Lopatto has done an excellent job of summarizing many of them in this explainer. One of the main concerns is that crypto companies could resort to less regulated institutions for your banking needs, potentially making the space even more risky for everyone involved. In other words, if there isn’t a bank that plays by the rules willing to do business with them, they may have to find a bank that doesn’t.
As for the bank’s next steps, it is winding down “in an orderly manner and in accordance with applicable regulatory processes” and is “considering how best to resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets”. ”
As all this has gone down, companies like Coinbase, Crypto.com and Paxos have started to move away from the bank. Even the stablecoin Tether took the opportunity to distance itself from the institution. Her list of allies was thin and she was being scrutinized by the government for her role in the collapse of FTX.
The Silvergate collapse will almost certainly draw scrutiny from lawmakers, especially those who are concerned about crypto contagion reaching the traditional financial sector.
“Today we are seeing what can happen when a bank is overly reliant on a risky and volatile sector like cryptocurrency,” said Senator Sherrod Brown (D-OH), who is the chairman of the Senate Banking, Housing, and Urban Affairs Committee. “I am concerned that when banks get involved with cryptocurrencies, it will spread the risk across the entire financial system and taxpayers and consumers will pay the price.”
