What happened to Silvergate Capital? And why is it important?

What is Silvergate Capital?

Silvergate Capital was formerly a California-based community bank founded in the late 1990s. In 2013, it switched to cryptocurrencies to offer traditional financial services to crypto companies, including exchanges like FTX, which filed for bankruptcy in November 2022. This was before other banks thought about crypto, which inevitably made Silvergate an integral part of the entire crypto industry.

One service Silvergate operates is the Silvergate Exchange Network, an instant payment platform that allows Silvergate customers to transfer US dollars to any Silvergate account even when traditional banks are closed nights and weekends.

Although the bank did not deal directly with cryptocurrencies, since withdrawals and deposits were made in fiat currencies, most of its clients traded crypto, meaning it was hit hard when the crypto market plummeted last year. This included FTX, one of the largest crypto exchanges in the industry before it filed for Chapter 11 bankruptcy.

What happened?

In just over a year, Silvergate Capital’s stock price has fallen about 95% since its record high in November 2021. In March of last year, investors were excited about Silvergate’s potential and the prospect of it potentially issuing a stablecoin after buying assets from Meta’s Diem, which was part of Meta Platform’s effort to build a payments network.

Earlier this year market makers such as Blackrock BLK,
-2.50%
and Citadel announced an investment in Silvergate 7% And 5.5% or.

But things changed quickly earlier this month after Silvergate warned it was delaying its annual report to the US Securities and Exchange Commission and evaluating its viability. Earlier this year, the bank had reported a $1 billion loss for its fourth quarter as investors withdrew deposits following the FTX bust, as the exchange was once one of Silvergate’s biggest customers. The company also laid off 40% of its workforce in January.

In January, a group of US Senators sent a letter to the bank question its role in FTX’s business practices. The letter also criticized the bank for taking out a loan from the Federal Home Loan Bank of San Francisco (FHLB) that “could further introduce crypto market risk into the traditional banking system.”

The bench was opposite multiple lawsuits who accuse the company of not having made investors aware that it lacks the necessary safeguards to uncover money laundering on the platform.

On Wednesday, the company finally said it is winding down operations and liquidating its bank, causing the stock price to plummet more than 36% in after-hours trading.

“Given recent industry and regulatory developments, Silvergate believes an orderly winding-up of the bank’s operations and voluntary liquidation of the bank is the best way forward,” the bank said in a statement. “The bank’s resolution and liquidation plan provides for the full repayment of all deposits.”

The company has not disclosed how it intends to resolve claims against its company.

Bitcoin BTCUSD price,
+0.44%
and ether ETHE,
-4.10%
was taken due to the news but also due to a number of other events that took place this week.