Silvergate Faces Enormous Crypto Withdrawals - Texas Today

Customers of the US bank Silvergate, which provides cryptocurrency services, have withdrawn more than $8 billion (£6.7 billion) from crypto-linked deposits.

Approximately two-thirds of the bank’s customers withdrew their deposits in the last three months of 2022.

To cover the costs and maintain liquidity, the bank sold assets worth $5.2 billion.

It occurred following a warning from three US authorities to banks that issuing cryptocurrency was “very likely to be inconsistent with safe banking procedures.”

Silvergate is a bank traded on the New York Stock Exchange; hence it is governed by the financial industry. It is one of only a few businesses in this field that provides cryptocurrency-related services.

The withdrawals occurred following the closure of the FTX crypto exchange, which was previously worth $32 billion and filed for bankruptcy in November.

Former FTX CEO Sam Bankman-Fried has pleaded not guilty to allegations of defrauding consumers. Prosecutors claim that up to one million people may have lost money.

The lawsuit has rattled the whole crypto industry, leading several companies to declare bankruptcy and cryptocurrency prices to fall.

Silvergate’s CEO, Alan Lane, stated that the bank was selling assets in order to fund consumer withdrawals “because the digital asset market is evolving so quickly.”

Crypto Winter

Silvergate is the latest victim of the industry’s chilly “crypto winter,” which has been raging since last spring.

The so-called “crypto bank” occupied a unique market position. It was a bank for bitcoin startups who needed help accessing standard banking services.

One of its clients was the now-defunct Alameda Research, which was owned by Sam Bankman-Fried, who is awaiting his fraud trial in the United States.

This is terrible enough for Silvergate, but Bankman-downfall is even worse. Fried’s has given the corporation a more serious blow: a loss of market confidence.

Since Bankman-empire Fried’s collapsed, investors of all sizes have begun withdrawing funds from cryptocurrency firms. Billions of dollars have been transferred from crypto storage businesses.

So far, the industry’s top players, including Binance and Coinbase, have been able to withstand the extraordinary withdrawals. Silvergate is likewise clinging on for the time being, albeit at a high cost to its balance sheet.

Before getting into cryptocurrency, Silvergate was a minor US bank. It went public in November 2019.

At the top of the market in 2021, its shares had increased by more than 1,500%, partly owing to cryptocurrency’s massive expansion during this time.

During this time, it attempted to launch its stablecoin, a cryptocurrency directly linked to an asset such as gold, the US dollar, or other cryptocurrencies.

In January 2022, Silvergate paid $182 million for Meta’s projected Diem (previously Libra) stablecoin technology, which has yet to materialize.

In a report with the Securities and Exchange Commission, the bank stated that it sold the debt to cover the withdrawals and wrote off the Diem purchase, which means it is no longer counted as an asset.

It has also reduced its workforce by 40%, or approximately 200 individuals. The withdrawals cost the bank $718 million, more than it has earned since 2013.

US regulators warn banks in the United States about the risks of cryptocurrencies…Read more

Source - Texas Today