Crypto bank Silvergate announces liquidation amid sector turmoil | Cryptocurrencies


Wind-down and liquidation plan follows mass withdrawal of deposits after collapse of FTX exchange

The cryptocurrency-focused US lender Silvergate is to wind down its operations after it was hit by customer withdrawals following the collapse of crypto exchange FTX.

The California-based bank had warned last week it was “less than well capitalised” after depositors demanding 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 path forward” in light of “recent industry and regulatory developments”. The failure of FTX sparked renewed volatility in the crypto markets. Silvergate also revealed it was being investigated by the US Department of Justice.

Its wind-down and liquidation plan includes full repayment of deposits, the bank added. Silvergate reported a $1bn (£840m) loss for the fourth quarter of 2022 after investors raced to withdraw more than $8bn in deposits, forcing it to incur losses as it sold assets to cover the cost of the withdrawals.

Multiple partners of the bank, including Coinbase, a crypto exchange, and Galaxy Digital, a crypto-focused financial services company, cut their links with Silvergate last week. FTX and its affiliated trading arm, Alameda Research, had Silvergate accounts.

After Silvergate’s statement, Coinbase said it had no client or corporate cash at the lender. Changpeng Zhao, the chief executive of Binance, the world’s largest crypto exchange, said his company did not have any asset losses at Silvergate.

Founded in 1988, Silvergate ventured into crypto in 2013. The bank had also operated a mortgage warehouse business, but announced in December it would be winding down that division, citing the rising interest rate environment and reduction in mortgage volumes.

Last week, the bank discontinued the Silvergate Exchange Network (SEN), its crypto payments platform and one of its most popular offerings. That network enabled round-the-clock transfers between investors and crypto exchanges, unlike traditional bank wires, which can often take days to settle.

While risks of contagion are minimal, given that Silvergate has said it will repay depositors and has performing loans, the loss of SEN is disappointing, said Ram Ahluwalia, the chief executive of Lumida Wealth, an investment adviser that specialises in digital assets.

“It’s more of a strategic loss of critical infrastructure for crypto,” he told Reuters.

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 $1tn was wiped off the value of the crypto sector in 2022, as rising interest rates affected appetite for riskier assets.

After rapid growth in 2020 and 2021, bitcoin, the most popular cryptocurrency by far, fell more than 60% last year, pressuring the digital assets industry. Bitcoin fell below $16,000 after FTX’s collapse in November, but has since recovered to about $21,000.

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