Silvergate Capital (SI), a New York-listed digital currency bank, fell sharply on Friday following fourth-quarter results that revealed the extent of damage the bank sustained in the aftermath of the FTX scandal.
The company’s total deposits to digital asset customers fell to US$3.8bn by December 31, a decrease of 68% during the quarter.
Silvergate responded by using wholesale financing to meet outflows, and selling US$5.2bn of debt securities for cash.
Silvergate was intrinsically connected to Sam Bankman-Fried’s FTX formation, formerly the second largest cryptocurrency exchange, before it collapsed in a whirlpool criminal fraud and serious professional misconduct allegations.
Bankman-Fried once stated that Silvergate allowed crypto firms to divide their lives into “before Silvergate” and “after Silvergate”. It’s difficult to overstate the impact it had on banking for blockchain companies.
That would have been an amazing endorsement at one time. It’s now a curse.
Silvergate has had to drastically rethink its hiring strategy due to market turmoil.
Silvergate had a lot of employees in 2022 to keep up with its growth. However, it now has to cut its workforce by around 200 employees or 40%.
On Wednesday, January 4, employees who were made redundant were notified. Expect to make a profit of US$8 million in the first quarter 2023 from redundancy packages
Silvergate also surrendered its mortgage warehouse lending product at 2022 and was subject to another US$4mln restructuring fee.
These numbers are small compared to Silvergate’s US$196mln impairment charges on intangible assets related to the acquisition of the Facebook-linked stablecoin Diem Group.
Silvergate stated that, “Given the changes in digital asset industry landscapes, this charge reflects Silvergate’s belief the launch of a Blockchain-based Payment Solution by Silvergate is not imminent.”
Silvergate now has approximately US$4.6bn of cash and cash equivalents after the debt securities fire sale. These cash and cash equivalents were ringfenced from digital asset customers’ deposits.
SI shares plunged 43% to US$12.57 Friday in pre-market trade and are now down 90.5% year-on-year.
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