Silvergate Bank Rushed to Cover $8.1 Billion During Crypto Market Crash

In order to fulfill its customers’ requests for withdrawals, the bank was forced to sell assets at a financial loss and reduce its workforce by 40%. Despite these challenges, the bank remains dedicated to the cryptocurrency industry.

The Wall Street Journal has reported that the collapse of FTX, a cryptocurrency exchange, caused a rush of withdrawals from Silvergate Capital Corp. The bank was forced to sell assets at a loss in order to cover the approximately $8.1 billion in withdrawals. Silvergate’s crypto-related deposits saw a 68% drop in the fourth quarter, leading the bank to liquidate debt it had on its balance sheet. The resulting loss of $718 million from selling the debt exceeded the bank’s profits since at least 2013. 

In response, Silvergate laid off 40% of its staff, around 200 employees, and plans to scale back its operations. It also abandoned plans to launch its own digital currency and wrote off the $196 million it had spent on technology acquired from Facebook’s failed attempt at creating a crypto-based payment network.

Silvergate, which serves the crypto industry by taking deposits and operating a network connecting investors to exchanges, had around $1 billion of its deposits from FTX and other companies controlled by its founder, Sam Bankman-Fried. The collapse of these companies in November disrupted the cryptocurrency market and caused Silvergate’s stock to drop significantly.

Unlike traditional banks, Silvergate was able to weather the significant decline in deposits because it has refocused its operations on providing bank accounts to cryptocurrency exchanges and investors. These crypto-related deposits make up about 90% of the bank’s total deposits, and the bank keeps most of its deposits in cash or easily-sellable securities.

Despite the challenges it faced, Silvergate stated that it remains committed to the cryptocurrency industry and has the financial resources to weather a prolonged period of change. At the end of the fourth quarter, the bank had more cash on hand than remaining deposits and held a large amount of debt securities that could be quickly sold if needed. Additionally, the bank reported an increase in average daily volume on its network during the same period.

Despite facing intense scrutiny and challenges related to the recent cryptocurrency market downturn, Silvergate Bank has stated that it remains committed to the digital asset industry and is taking action to navigate the current environment. 

The bank’s stock price has fallen more than 70% in the past three months and its shares have been heavily shorted, with short trades reportedly making over $400 million in the past year. The bank attributes the recent withdrawals to a crisis of confidence in the cryptocurrency market and reports that deposits dropped to as low as $3.5 billion in the fourth quarter before recovering slightly to end the quarter at $3.8 billion. Silvergate plans to release its full fourth-quarter results later this month.