Silvergate Capital to Liquidate Bank Amid Regulatory Crackdown

Silvergate Capital, a central lender to the cryptocurrency industry, has announced the winding down of its operations and the liquidation of its bank. The company is one of the two primary banks for crypto firms, along with Signature Bank. The liquidation announcement caused the stock to plunge more than 36% in after-hours trading.

Reasons for the Liquidation

Silvergate cited recent industry and regulatory developments as the reason for the liquidation of the bank. The company believes that an orderly wind-down of bank operations and a voluntary liquidation of the bank is the best path forward. Silvergate has just over $11 billion in assets compared with over $114 billion at Signature Bank.

Liquidation Plan

According to the liquidation plan shared by the company, all deposits will be fully repaid. However, the company did not specify how it plans to resolve claims against its business. Centerview Partners will act as Silvergate’s financial advisor and Cravath, Swaine & Moore will provide legal services.

Impact on Customers

The liquidation comes less than a week after Silvergate discontinued its payments platform known as the Silvergate Exchange Network (SEN), which was considered to be one of its core offerings. The company clarified that all other deposit-related services remain operational as the company winds down. Customers will be notified should there be any further changes.

Reasons for the Delay in Filing Annual 10-K

Silvergate said it would delay the filing of its annual 10-K for 2022 while it sorted out the “viability” of its business. The delayed filing was partly due to an imminent regulatory crackdown, including a probe already underway by the Department of Justice, Congressional inquiries, and investigations from its banking regulators, which include the Federal Reserve and the California Department of Financial Protection and Innovation.

Struggling for Months

Silvergate has been struggling for months. In addition to laying off 40% of its workforce in January, the firm reported a nearly $1 billion dollar net loss in the fourth quarter following a rush for the exits at the end of last year that saw customer deposits plummet 68% to $3.8 billion. To cover the withdrawals, Silvergate had to sell $5.2 billion dollars of debt securities.

Investment Firms’ Stakes in Silvergate

Investment firms Citadel Securities and BlackRock recently took major stakes in Silvergate, buying up 5.5% and 7%, respectively.

The liquidation of Silvergate Capital is a momentous development that bears significant implications for the cryptocurrency industry. As of now, the impact of this liquidation remains unclear, but it is expected to pose serious challenges for crypto firms and investors. Furthermore, it could potentially trigger increased regulatory oversight and scrutiny of the entire industry.