Silvergate Capital Bankruptcy: Here’s What Went Wrong
Vignesh S G19 Sept 20242 min read
Silvergate Capital has become the latest victim of the 2022 cryptocurrency collapse. The company has filed for bankruptcy in order to pay its creditors. The story of Silvergate Capital, especially its rise and fall, has a close connection with the turbulent journey of the crypto sector. Every crypto enthusiast should know this story; there are huge lessons to learn. Here we bring it for you!
The Rise and Fall of Silvergate
Silvergate Capital is the parent company of Silvergate Bank – popular for its crypto-friendly status. The bank supported the crypto industry extensively. At the peak of its business journey, the majority of its business activities were focused on the crypto industry.
The period between 2019 and 2021 is regarded as a golden period for the bank, as during that time its deposits grew sharply from $1.8 billion to $14.3 billion. The bank was a close partner of FTX, which was then a rapidly growing cryptocurrency exchange. As we all know, the year 2022 was a tough period for the cryptocurrency industry. It witnessed several shocking failures, including the one of FTX.
These failures had a profound impact on businesses tied closely to the crypto market. Silvergate Bank couldn’t withstand the shock. In 2022 alone, customers withdrew at least $8 billion. To try and cope, Silvergate sold long-term securities at a heavy loss, but these measures weren’t enough. By March 2023, the bank shut down and agreed to pay $63 million to settle investigations by U.S. regulators.
Why Did Silvergate Fall?
The collapse of the crypto market led to stricter oversight of crypto companies, including Silvergate. Regulators questioned the bank’s compliance with anti-money laundering laws. Despite this, all charges against Silvergate were dropped in 2023 when it settled with the Federal Reserve for $63 million. The bank claimed it had repaid all customer deposits, although it didn’t view its shutdown as a failure.
Silvergate’s Final Payout to Stakeholders: What You Should Know
Right now, after all the settlements, the company has at least $163 million in cash left. As per a news report published in Reuters, it will use the cash to distribute it among its stakeholders. All its bondholders and some of its equity holders will receive the payment in full. Unfortunately, there is less chance for common stockholders to receive any payment.
In conclusion, the story of Silvergate exposes the key risks associated with building a business model totally reliant on the crypto industry without considering the volatile nature of digital assets.
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