Silvergate is Liquidating its Bank in a Blow To Crypto

Silvergate Bank, a major player in the crypto world, will wind down operations and be liquidated, its holding company announced Wednesday afternoon.

Silvergate Capital Si -42.16% (ticker: SI) announced Wednesday afternoon in a News Release that the liquidation plan included the repayment of all deposits. Most deposit-related services will also be available during the shutting down process.

After-hours trading saw Silvergate stock fall 31% to $3.40

“This is very harmful for the industry,” stated Mizuhoanalyst Dan Dolev. Dolev has long been skeptical about the long-term prospects of digital assets. “You don’t want to live in a place where all the windows have been broken.”

Silvergate, which is based in La Jolla (Calif.), stated in a filing to the Securities and Exchange Commission that it would delay filing

Silvergate Capital has been doubtful about its future. It is possible that other lenders will not be able to step in.

Although the bank was established in late 1980s, it began rapid growth in 2013 when it focused on attracting crypto companies to its customers. This was because many people in the cryptocurrency industry found it difficult to find traditional companies willing to provide them with services at that time. The bank saw a rise in demand for Bitcoin USD -1.07% and other tokens, which led to an increase in its deposit base to $14.3 million by 2021.

The crypto industry was in turmoil last year, as a string of bankruptcies culminated in fraud allegations against trading platform FTX with which Silvergate had a bank relationship. Silvergate suffered a drop in deposits from $8.1 billion to $3.8 million during the fourth quarter.

“Today, we are witnessing what can happen when banks overreliant upon a volatile, risky sector like cryptocurrency,” stated Sherrod Brown, Chair of the Senate Banking Committee (D. Ohio), in a statement about the collapse.

Silvergate was a niche bank that never developed, but its demise will have serious implications for the crypto market. Many of the major digital-assets companies had accounts at Silvergate once. The bank also created the Silvergate Exchange Network, which allows customers to send money in real time to one another 24 hours a days, without having to go through any intermediaries.

Silvergate was shut down after companies like Circle Internet Financial, Gemini Trust Co., and Coinbase International COIN -7.81% (COIN) stopped doing business with the bank.

Silvergate will discontinue its interbank transfer network. This was a critical pillar of growth and an important part of the crypto market infrastructure.

Silvergate’s closure comes as crypto companies find it increasingly difficult

Bitcoin is rebounding, but a flurry federal investigations, directives and enforcement actions could make the industry fall behind.

Top U.S. bank regulators sent guidance this year warning banks about the dangers of doing business with cryptocurrency companies. Some people in the industry report that it is difficult to find any bank.

The price of Bitcoin rose 32% to $22,000 this year. However, experts warn that the disruption caused in part by Silvergate and lower liquidity in the token markets could stop the rally.

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