Silvergate Bank to Wind Down Operations, Crypto Industry Reeling
Silvergate Capital Corp., the parent company of Silvergate Bank, announced Wednesday it will wind down operations and liquidate the bank. The move comes after the crypto industry’s meltdown sapped the company’s financial strength, sending shares plunging.
“In light of recent industry and regulatory developments, Silvergate believes that an orderly wind down of bank operations and a voluntary liquidation of the bank is the best path forward,” the company said in a statement. All deposits will be fully repaid as part of the bank’s wind-down and liquidation plan.
The decision to close the bank follows the collapse of crypto exchange FTX earlier this year, which caused a run on deposits at Silvergate. The company reported a $1 billion net loss in the fourth quarter of 2021 and customers withdrew more than $8 billion from the bank. Silvergate was forced to sell securities it held to cover the cost of the withdrawals, incurring a loss of $718 million.
In response, several major crypto companies, including Coinbase, Circle, Paxos, Galaxy Digital, MicroStrategy and Tether, have distanced themselves from Silvergate. The bank also closed its Silvergate Exchange Network (SEN), a major payments network hub for the crypto industry.
The fallout from FTX’s collapse has raised concerns about the stability and sustainability of the crypto industry, with Senator Sherrod Brown of the Senate Banking Committee saying that banks that get involved with crypto are spreading risk across the financial system.
Meanwhile, the collapse of Silvergate has sent Bitcoin (BTC-USD) tumbling to its lowest levels in three weeks and other cryptocurrencies are trading at deep losses. At the time of this writing, Bitcoin and Ethereum are both showing declines of over 6% in the last 24 hours, with Bitcoin costing $19,935 and Ethereum costing $1,406.
The closure of Silvergate Bank and the uncertainty surrounding crypto firms’ relationships with banks going forward raises questions about what the future holds for the industry. It also serves as a reminder of the risks associated with investing in digital assets, and the need for strong investor protections.
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