Silvergate Bank, a cornerstone in the crypto world, announced that it is closing and returning deposits. In a press releasethe bank’s holding company, Silvergate Capital Corporation, said it had made the decision to close “in light of recent industry and regulatory developments”.
It’s been clear for some time that the company has struggled with some of its most high-profile clients like FTX and Genesis. In January, the earnings report revealed that it lost $1 billion in a quarter after its clients withdraw $8.1 billion. Then, on March 1, it filed a document stating its financials even worse than the quarterly report showed.
There are several concerns about what the crypto landscape will look like without Silvergate, especially when it comes to where companies will turn to get money. My colleague Elizabeth Lopatto has done an excellent job of summarizing many of them in this explanation. One of the biggest concerns is that crypto companies can turn to less regulated institutions for their banking needs, potentially making space even more risky for everyone involved. In other words, if there isn’t a bank that complies and wants to do business with them, they may need to find a bank that doesn’t.
As for the bank’s next steps, it is liquidating “in an orderly manner and in accordance with applicable regulatory processes” and “is considering how best to resolve claims and preserve the residual value of its assets, including its own technology and tax assets.”
With all of this winding down, companies like Coinbase, Crypto.com, and Paxos have started moving away from the bank. Even the Tether stablecoin took the opportunity to distance itself from the institution. The list of allies was thin and the government investigated its role in the FTX meltdown.
Silvergate’s collapse will almost certainly draw attention from lawmakers, especially those concerned about the crypto contagion reaching the traditional financial sector.
“Today we see what can happen when a bank becomes too dependent on a risky, volatile industry like cryptocurrencies,” said Sen. Sherrod Brown (D-OH), chair of the Senate Banking, Housing and Urban Affairs Committee. “I am concerned that when banks get involved in crypto, it spreads risk throughout the financial system and it is taxpayers and consumers who pay the price.”