Cryptocurrency-focused Bank Silvergate plans to pull back after the hit from FTX

(Reuters) – Cryptocurrency-focused bank Silvergate Capital (SI.N) said on Wednesday it plans to wind down operations and voluntarily liquidate after suffering losses in the wake of the dramatic collapse of cryptocurrency exchange FTX, which sent its shares down 35.% in trading after work hours.

The decision to close the bank comes after the company warned last week that it was assessing its ability to operate as a going concern, revealing that it had sold additional debt this year at a loss and that more losses meant the bank could be “lower”. It’s well capitalized.”

The dire outcome of Silvergate in La Jolla, California, one of the crypto industry’s favorite banks, shows the impact on the digital asset industry from the collapse of FTX, which filed for bankruptcy in November after failing to cover customer withdrawals.

Silvergate said in a statement that the decision to close its bank is the “best path forward” in light of “recent industry and regulatory developments.” The bank added that the liquidation and liquidation plan includes the full payment of deposits.

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Several of the bank’s partners, including high-profile companies like Coinbase Global Inc (COIN.O) and Galaxy Digital, severed ties with Silvergate last week.

Following Silvergate’s statement, cryptocurrency exchange Coinbase said it had no customers or cash for the company in Silvergate, while Binance Chairman Changpeng Zhao said the company had no asset losses on Silvergate.

Silvergate reported a $1 billion loss in its most recent quarter as investors raced to withdraw more than $8 billion in deposits.

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The bank said in a statement that Silvergate has retained Centerview Partners LLC as financial advisor, and Cravath, Swaine & Moore LLP has retained the role of legal advisor.

Founded in 1988, Silvergate entered the world of crypto in 2013. The bank had also operated a mortgage warehouse business, but announced in December that it would end the division, citing an environment of increasing interest rates and declining mortgage volume.

Last week, Silvergate shut down the Silvergate Exchange Network, a cryptocurrency payments network and one of its most popular offerings. This network enabled round-the-clock transfers between investors and cryptocurrency exchanges, unlike traditional bank transfers, which can take days to settle.

While the risk of contagion is minimal, said Ram Ahluwalia, CEO of Lumeda Wealth, an investment advisor specializing in digital, since Silvergate said it would pay back depositors and had expired loans, the loss of the Silvergate exchange network was disappointing. origins.

“It is a strategic loss for critical cryptocurrency infrastructure,” he said.

The Federal Deposit Insurance Corporation (FDIC) declined to comment Wednesday when asked about the bank’s failure after it said it does not regulate the bank or the holding company. Bloomberg previously reported that the FDIC was discussing with Silvergate ways to avoid a shutdown.

Federal prosecutors in Washington are investigating the company and its dealings with FTX and the Alameda Research business. In January, three US senators asked Silvergate for details on risk management and FTX.

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In a statement, the California Department of Financial Protection and Innovation, which oversees Silvergate under the state charter, said it evaluates the bank’s compliance with financial laws, as well as safety and health obligations, and is working with relevant federal counterparts.

More than $1 trillion in value will be wiped out from the crypto sector in 2022 as interest rates rise exacerbating fears of an economic slowdown.

After rapid growth in 2020 and 2021, bitcoin – by far the most popular digital currency – fell by more than 60% last year, putting pressure on the digital asset industry.

(Reporting by Hannah Lang in Washington and Anirban Chakroborty in Bengaluru.) Additional reporting by Manya Saini and Marinamay Day in Bengaluru; Editing by Magoo Samuel and Matthew Lewis and Lincoln Vest.

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