Following the downfall of cryptocurrency exchange FTX, Silvergate, a US-based lender specializing in cryptocurrency, will be ceasing operations due to significant customer withdrawals.
Recently, the California headquartered bank had issued a warning stating that it was not adequately capitalized after a surge in depositor withdrawals. Furthermore, the bank mentioned that it was assessing its capacity to continue operations as a viable entity.
In response to recent industry and regulatory developments, Silvergate, a California based bank specializing in cryptocurrency, has announced its intention to liquidate voluntarily. The bank stated that this is the most suitable course of action, and the wind down plan will involve the full repayment of all deposits. However, the bank also disclosed that it is currently under investigation by the US Department of Justice.
Silvergate experienced a significant loss of deposits, with investors withdrawing more than $8 billion, leading to a $1 billion loss in the fourth quarter of 2022. This forced the bank to sell assets to cover the withdrawals.
Such as Coinbase and Galaxy Digital, terminated their relationships with the bank last week. FTX and its trading affiliate Alameda Research held accounts at Silvergate.
The bank recently ceased its popular crypto payments platform, the Silvergate Exchange Network (SEN), and shut down its mortgage warehouse division in December 2022.
Ram Ahluwalia, CEO of Lumida Wealth, stated that while the risk of contagion is low since Silvergate will repay depositors and has performing loans, the loss of SEN is regrettable as it is a critical infrastructure for the crypto industry.
The US federal prosecutors in Washington have launched an investigation into Silvergate and its interactions with FTX and Alameda Research. Additionally, in January, three US senators requested information from Silvergate regarding its risk management.
In 2022, the cryptocurrency market suffered losses of over $1 trillion as investors’ interest in riskier assets dwindled due to rising interest rates.
Bitcoin, the most popular cryptocurrency, witnessed significant growth in 2020 and 2021 but experienced a decline of over 60% in 2022, putting pressure on the digital assets industry.
Bitcoin’s value dropped below $16,000 following FTX’s collapse in November but has since rebounded to approximately $21,000.
