What is Silvergate Capital, and why does it matter?


After delaying its annual report to the U.S Securities and Exchange Commission, shares of Silvergate Capital
a cryptocurrency-focused lender, slumped 29% in premarket trading on Thursday. Since then, the bank has been making headlines as the news reverberated around the crypto industry and crypto prices dropped. Firms including Coinbase
Galaxy Digital and Circle have all stopped banking with the Silvergate.

What is Silvergate Capital?

Silvergate Capital used to be a California-based community bank that launched in the late 1990s, but a decade ago, it also pivoted into cryptocurrencies to offer traditional financial services to crypto companies, including exchanges. This was before any other banks were thinking about crypto, inevitably making Silvergate an essential part to the entire crypto industry.

One service that Silvergate operates is the Silvergate Exchange Network, which is an instant payment platform that enables Silvergate clients to send U.S. dollars anytime to any Silvergate account, even when traditional banks are closed on nights and weekends.

Even though the bank didn’t directly deal with cryptocurrencies, because withdrawals and deposits were done in fiat currencies, most of its clients dealt with crypto, meaning it was hard hit by the slump in the crypto market last year and the collapse of crypto exchanges.. This included FTX, one of the largest crypto exchanges in the industry before filing for bankruptcy in November 2022.

Why does it matter?

In just over a year, Silvergate Capital’s stock price has dropped around 95% since its record high in November 2021. In March of last year, investors were excited about Silvergate’s potential and the prospect of it possibly issuing a stablecoin after it bought assets from Meta’s Diem (formerly known as Libra), which was part of Meta Platform’s effort to build a futuristic payments network.

Things quickly changed after Silvergate warned on Thursday that it was delaying its annual report and evaluating its ability to operate. Earlier this year the bank had reported a $1 billion loss for its fourth quarter as investors withdrew deposits in the wake of the FTX bankruptcy as the exchange was once one of Silvergate’s biggest customers.

In January, a group of U.S. senators sent a letter to the bank questioning its role in FTX’s business practices. The letter also criticized the bank for taking out a loan from the Federal Home Loan Bank of San Francisco (FHLB) which could “further introduce crypto market risk into traditional banking system.”

The bank is also facing multiple lawsuits that accuse the firm of failing to alert investors that it lacks the necessary protections needed to detect money laundering on the platform.

In light of all these events and financial losses for the bank since the collapse of FTX, some investors are now worried that Silvergate might file for bankruptcy protection also.

If the bank fails, the Federal Deposit Insurance Corporation (FDIC) might step in to protect depositors. It’s unclear if any other bank would want to buy Silvergate.

According to one calculation by crypto analyst and writer David Gerard, Silvergate made up 61.7% of “total, worldwide crypto asset prudential exposures”, so the impacts of its downfall will be widely felt.

is trading at $22,528, up 0.44% in the last 24 hours, according to CoinDesk data. Ether
is trading at $1,575, down 0.34% according to CoinDesk Data.




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