Crypto-friendly lender Silvergate Capital (New York Stock Exchange: SI) is collapsing, which is “definitely not good for the crypto industry,” said Konstantin Shulga, CEO and co-founder of Finery Markets, an institutional crypto liquidity marketplace.
Silvergate (SI), Bank Sam Bankman-Fried’s failed cryptocurrency exchange FTX (FTT-USD), became the latest victim of the prolonged market downturn after revealing scheduled to shrink Suspend business and voluntarily liquidate.
That decision comes after the 35-year-old San Diego, Calif.-based company, which posted a $1 billion loss in the fourth quarter, was forced to assess its ability to continue as a going concern about two weeks ago. Institutional investors such as Coinbase Global (COIN) and Galaxy Digital (OTCPK:BRPHF). Silvergate (SI) subsequently announced that it would be discontinuing the Silvergate Exchange Network, a virtual payments platform that was deployed in 2018 to enable instant 24/7 money transfers between market participants and cryptocurrency exchanges. and has grown rapidly to become one of its leading growth drivers. driver.
Stocks once valued at $200 in late 2021 as Bitcoin (BTC-USD) hits all-time high, Silvergate (SI) rushes for customers to withdraw money from banks after November trading Take a look, it’s currently below $3. The bankruptcy of FTX (FTT-USD) and its sister trading company Alameda Research. Both reportedly had accounts with Silvergate. Last month, the Justice Department is said to have begun investigating Silvergate’s ties to Bankman-Fried’s crypto empire.
If it hadn’t had $4.3 billion in short-term advances from the Federal Home Loan Bank at the end of 2022 and about $4.6 billion in cash, things could have been much worse. “It is difficult to know what the final outcome and timeline of this process will be,” KBW analyst Michael Perito wrote in a note to clients last week, as it begins the process of phasing out banking. rice field.
Silvergate (SI) was an important player in providing crypto-related banking services before its demise, but the economic ripple effect of the fall in FTX (FTX-USD) has put its once-strong reputation on the line. I lost.
“The Silvergate case is not by banks making risky, over-leveraged loans against crypto collateral (as was the case with the 3AC, Celsius, or FTX collapses), but rather normal banking. It’s special because we lost money by doing it,” Shuruga told ICS Digital recently. In his interview, he mentioned additional securities he sold at a loss so far in 2023 to fund an unusual run of deposits.
As a result, “the capital adequacy ratio deteriorated rapidly, continuing a downward spiral that led to more customers withdrawing their funds,” he added. “This is arguably not good for the cryptocurrency industry, and it could potentially set a certain trend of cryptocurrencies moving out of the United States, at least until a more comprehensive regulatory framework is established in the United States. It could mean: a real increase in the clarification of rules and regulations that will improve the quality of banking relationships for crypto companies as the industry will stay here no matter what happens to Silvergate.”
Seeking Alpha contributor The Digital Trend expects a “dramatic” impact on the crypto space from the fall in Silvergate (SI), but says, “We’ll see how resilient the crypto space and community are.” We are asking for it.”