Crypto Bank Silvergate Faces $8 B In Customer Withdrawals
According to a report from The Street, crypto-friendly bank Silvergate (SI) retraced on a massive 27% rally following a preliminary quarter result. The financial institution recorded a steep decline in customer withdrawals.
As a result, Silvergate’s shares declined by over 40% during today’s trading session. Representatives from the financial institution claim that there has been a “confidence crisis across the digital asset ecosystem” after the collapse of the crypto exchange FTX.
Confidence Crisis In Crypto Put Silvergate In Trouble
Once the world’s second-largest crypto trading platform, FTX filed for bankruptcy protection in late 2022. The trading platform and its executives allegedly commingled their customers’ assets with those of their trading arm, Alameda Research.
These events have rippled across the nascent industry as people’s confidence in crypto companies dropped. Silvergate is suffering from these consequences. The financial institution saw a decline in customer funds by above $8.1 billion.
At the end of the third quarter of 2022, the bank registered $11.9 billion in customer deposits. Silvergate has about $3.8 billion today, representing a 68% drop from its 2022 high.
As a result, the financial institution was forced to liquidate $5.2 billion in digital assets for a $718 million loss. In addition, the bank cut around 40% of its staff to raise cash and liquidity. The financial company had $4.6 billion in total cash by the end of December 2022.
Alan Lane, CEO at Silvergate, stated the following regarding the bank’s situation:
In response to the rapid changes in the digital asset industry during the fourth quarter, we took commensurate steps to ensure that we were maintaining cash liquidity in order to satisfy potential deposit outflows, and we currently maintain a cash position in excess of our digital asset related deposits.
No New Plans For Silvergate?
A separate report from the Wall Street Journal claims that Silvergate was forced to cut down on its operation. In addition to selling its digital asset, the company sold off “much of its traditional banking operations and branches.”
The financial institution will focus on providing services to crypto companies and crypto trading venues. This operation constitutes over 90& of the bank’s deposits.
Furthermore, the company is pulling the plug on launching its cryptocurrency. Silvergate bought the technology used by Facebook to develop its token, Libra. This digital asset saw massive opposition from politicians and regulators around the world.
This opposition forced Facebook to cancel the project. Now, Silvergate will follow these steps for a $196 million loss. Despite recent events, the bank remains optimistic about the nascent industry. A representative told the WSJ:
While Silvergate is taking decisive action to navigate the current environment, its mission has not changed. Silvergate believes in the digital asset industry.