Silvergate Crypto Bank Shuts Down & Liquidates

One crypto bank is no more — and one wonders what’s next for the crypto banking business model itself.

 To that end, Silvergate Capital said Wednesday night (March 8) that it would wind down operations and voluntarily liquidate Silvergate Bank.

And in the release announcingthe wind-down, the company said it is “considering how to best preserve the residual value of its assets.”

Amid that wind-down, the company has said its liquidation plan includes the “full repayment” of all deposits.

As to what that deposit base looks like and for the ultimate claims on the business, some additional details will likely be forthcoming. As recently as last week, as noted here, the company said it would delay filing its annual report with the U.S. Securities and Exchange Commission (its 10-K) while it examined its ability to continue as a going concern.

A Going Concern No Longer 

We now have an answer to the “going concern” question. The Wednesday liquidation announcement comes in the wake of reports earlier in the day that Silvergate had been in talks with the FDIC to see how it might be able to continue operating.  

Read more: Silvergate’s Crisis Gives Regulators Ammunition to Keep Crypto from Mainstream Banking

The probes were mounting from the likes of the Department of Justice. But we contend that among the most crippling blows to the business were the desertions from key customers such as Coinbase, Paxos and others (and FTX, which had held a reported $1 billion of deposits, imploded last year). At the end of the most recent quarter, as detailed in the company’s earnings presentation, the “crisis of confidence” across the crypto industry caused deposits at Silvergate to plummet to $3.8 billion at the end of last year, down from $11.9 billion in the previous year. The company used wholesale funding to satisfy those outflows (in other words, to cover the withdrawals) and also sold debit securities to keep going.  

That aforementioned crisis of confidence may reverberate: As of this writing, Silvergate shares had plummeted by more than 40% after hours. Bitcoin was off by more than 2%. Reached for comment on Wednesday, a Silvergate spokesperson told PYMNTS that the company had nothing to add beyond what has been publicly announced.

The fallout will initially hit some of the traditional financial/investment players that have had a stake in Silvergate, where Citadel Securities and BlackRock have a respective 5.5% and 7% stake in the company – and those holdings were disclosed in recent weeks.

But against the larger backdrop, the divide between traditional banking and crypto firms may become a chasm. Putting aside the fact that crypto firms are cutting edge, at least to their champions — they must still exist, in part, within the traditional financial services ecosystem. That means having bank accounts, cash, and deposits and withdrawals to do everything from paying staff to buying computer equipment to, well, you name it. There’s another large crypto bank out there: Signature Bank. It has been actively reducing at least some of its exposure to crypto by reducing the deposits exposed to the sector to 15% from 23%.