polar storm – Silvergate is on the list of victims of the bankruptcy FTX and its affiliated entities. The bank is in the sights of American regulation because of his connections to 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 to cryptocurrency exchanges. The tremors that affect players in 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 situation 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.
Silvergate facing FTX and Alameda shake-ups
The crypto winter puts Silvergate in a tricky position. The bank held funds from Alameda and FTX. Fears about the financial situation of the company have thus begun to emerge in the crypto community, following the bankruptcy of FTX and its subsidiaries.
Some observers also pointed to the risks associated with a possible exposure of Silvergate to crypto lending company BlockFi, who also filed for bankruptcy.
Faced with these growing concerns, the CEO of Silvergate, Alan Lanetried to reassure the company’s stakeholders in a communicated of November 11, where he claimed that FTX’s deposits only represented less than 10 % of $11.9 billion in total customer deposits at the bank, as of September 30.
Alan Lane also pointed out that Silvergate does not have “outstanding loans or investments in FTX”. Furthermore, the bankrupt crypto exchange would not be a custodian of SEN Leverage loans, which are secured by bitcoin (BTC). FTX wouldn’t be so than a simple depositor Near the bank.
Silvergate had also tried to minimize its exposure to BlockFi. In a November 28 statement, the company revealed that it had $20 million in customer deposits on the crypto platform, but did not have investments in BlockFi. Nor would the crypto lending firm be a custodian of Silvergate’s leveraged loans, which are secured by bitcoins.
Plummeting deposits, sales at a loss, and a massive layoff
However, these crisis releases apparently did not failed to allay fears investors and customers. The collapse of Terra, Three Arrows Capital, Celsius, FTX and Alameda has created a crisis of confidence, 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 a communicated from January 5 on Silvergate’s financial situation, total deposits from customers whose activities are related to digital assets, amounted to $3.8 billion as of December 31, compared to $11.9 billion as of December 30. september. During the last quarter of last year, these deposits thus decreased by $8.1 billion.
Faced with this significant drop in deposits, Silvergate decided to sell 5.2 billion dollars of debt securities, to obtain 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 will reduce its workforce by 20%. This measure affects approximately 200 employees, who were to be notified on January 4.
A controversial rescue of an American crypto-friendly bank
Silvergate therefore sold debt securities to obtain the cash necessary for the continuity of operations. The press release on its financial situation for the 4th quarter of 2022 also indicates that the company received a $4.3 billion loan of the Federal Home Loan Bankbased in San Francisco.
The Federal Home Loan Banks are made up of 11 parastatal banks, which lend to financial institutions – credit unions, commercial banks, insurance companies, etc.
While Silvergate has had to resort to this loan to maintain its cash flow, some observers have criticized this loan as a Federal Home Loan Bank granted to a bank venturing into the cryptocurrency field.
In a January 11 post on Twitter, John Reed Stark, a former executive in the U.S. SEC’s Office of Internet Enforcement, noted that through this loan, American taxpayers subsidized now ” fraud/theft crypto in the first US crypto bailout”.
The crypto winter continues at the start of 2023. Silvergate and other crypto companies are forced to carry out budget cuts to the detriment of their staff. The race for cash continues during these bear markets which have seriously damaged the finances of giants… with feet of clay for some.
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Crypto-friendly bank Silvergate in the midst of a post-FTX hangover
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