Crypto-friendly Silvergate bank in the midst of a post-FTX hangover

polar storm – Silvergate is on the list of victims of the bankruptcy of FTX and its related entities. Bank is in view of American regulation because of his ties to the Sam Bankman-Fried Companies. The report on its performance in the fourth quarter of last year shows that the collapse of FTX and Alameda had a significant impact on the financial health of the company.

Silvergate Bank: the bank for crypto businesses

Silvergate provides banking services for cryptocurrency exchanges. The fluctuations that affect the players of the sector can thus affect the bank, which indirectly exposes itself to cryptocurrencies through the services it offers.

The figures on the company’s financial position illustrate the extent of this exposure. 90% of deposits of the bank come from crypto companies. At the end of the third quarter of last year, half of the bank’s deposits came from its ten largest depositors, which include Coinbase, Paxos, Crypto.com, Gemini, Kraken, Bitstamp and Circle.

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Silvergate faces upset of FTX and Alameda

The crypto winter puts Silvergate in a tricky position. The bank held funding from Alameda and FTX. Fears about the company’s financial situation have begun to emerge in the crypto community, following the bankruptcy of FTX and its subsidiaries.

Some observers also pointed out the dangers associated with a possible exposure of Silvergate for crypto lending company BlockFi, who also filed for bankruptcy.

In the face of these growing concerns, Silvergate CEO, Alan Lanetried to appease the company’s stakeholders in a communicate of November 11, where he claimed that the FTX deposits represented only less than 10% of 11.9 billion dollars in total customer deposits in the bank, on September 30.

FTX collapse: its former business partners in turmoil

Alan Lane also noted that Silvergate has “no outstanding loans or investments in FTX.” Additionally, the bankrupt crypto exchange would not be a custodian of the SEN Leverage loans, which are secured by bitcoin (BTC). FTX would not be like that than a simple depositor Near the bank.

Silvergate had also tried to minimize its exposure to BlockFi. In a statement on November 28, the company revealed that had $20 million in customer deposits on the crypto platform, but there have been no investments in BlockFi. Nor would the crypto-lending firm be a custodian of Silvergate’s leveraged loans, which are secured by bitcoin.

Declining deposits, loss sales and a massive layoff

However, these crisis announcements apparently did not failed to calm the fear investors and customers. The decline of Terra, Three Arrows Capital, Celsius, FTX and Alameda has created a crisis of faith the consequences of which can be fatal for third-party custodians whose reserves are insufficient in the event of massive withdrawals of funds by their clients.

According to one communicate from January 5 in Silvergate’s financial situation, total deposits from customers whose activities are related to digital assets reached $3.8 billion as of December 31, compared to $11.9 billion as of December 30. During the last quarter of last year, these deposits so sitting with 8.1 billion dollars.

Faced with this significant drop in deposits, Silvergate decided to sell $5.2 billion in debt securities to raise cash. The sale of these securities and related derivatives resulted in a loss of $718 million during the fourth quarter of 2022.

Another point in the press release reveals the financial difficulties the company is facing. Silvergate to reduce workforce by 20%. This measure affects about 200 employees, who would be notified on January 4.

A controversial rescue of a crypto-friendly US bank

Silvergate therefore sold debt securities to obtain the cash needed to continue operations. The press release for its Q4 2022 financials also shows that the company has received a $4.3 billion in loans of Federal Home Loan Bankbased in San Francisco.

of Federal home loan banks consist of 11 para-state banks, which lend to financial institutions – credit unions, commercial banks, insurance companies, etc.

While Silvergate has had to use this loan to maintain its cash flow, some observers have criticized the loan as a Federal Home Loan Bank given to a bank that has entered the cryptocurrency field.

In a Jan. 11 tweet, John Reed Stark, a former executive in the US SEC’s Office of Internet Enforcement, pointed out that through this credit American taxpayers subsidized now” fraud/theft crypto in the first US crypto bailout”.

Crypto winter continues into early 2023. Silvergate and other crypto companies are forced to budget cuts to the detriment of their staff. The race for cash continues during these bear markets that have severely damaged the financials of the giants… with feet of clay for some.

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