Silvergate in crisis: Billions withdrawn, liquidations and losses mount

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Crypto-friendly bank and financial service provider Silvergate posted a loss of $949 million for the final three months of 2022. Massive losses in the past few weeks have forced the company to lay off 40% of its staff. It expects to part ways with $8.1 million in restructuring costs, such as severance packages.

Customers withdrew a record-breaking $8 billion from Silvergate during the quarter. The bank’s largest customers, FTX and Alameda Research, filed for bankruptcy protection in November. As Silvergate liquidated assets to satisfy an avalanche of customers’ withdrawal requests, the bank lost hundreds of millions of dollars by selling bonds and other illiquid securities prior to their intended maturities. Silvergate will also pay a $134 million impairment charge for securities that it plans to prematurely sell during the first quarter of 2023.

The heavy losses of Q4 2022 contrast starkly with its $76 million of net income during the same quarter of 2021. Indeed, it’s been a rough year for both Silvergate and its industry — Alameda Research made Silvergate its primary bank in 2022. Then, the firm instructed FTX customers to make deposits by wiring money to Alameda Research’s Silvergate account.

At the time of FTX’s bankruptcy filing, according to Silvergate, Sam Bankman-Fried’s now-bankrupt companies accounted for less than 10% of the $11.9 billion in deposits from Silvergate’s crypto industry customers. The bankruptcy and associated freezing of FTX customers’ funds triggered a bank run-type situation.

  • The run included Silvergate’s customers withdrawing 68% of all deposits held on behalf of the crypto industry.
  • From September 30, 2022 to December 31, 2022, Silvergate shed 52 digital asset customers.
  • Silvergate Exchange Network loans using digital assets as collateral stood at $1.1 billion on December 31, 2022, down about $400 million from September 30, 2022. That likely indicates that some parties aggressively paid off loans to free up collateral.

Silvergate attempts positive PR spin

Beyond issuing its expected quarterly reports, Silvergate told Bloomberg that it prefers not to comment on customers and their activities. A spokesperson only mentioned that it’s a fully regulated bank with a proprietary approach to regulatory compliance.

Despite the generally poor year, Silvergate isn’t giving up on the digital asset industry.

“While we are taking decisive actions to navigate the current environment, our mission has not changed. We believe in the digital asset industry,” CEO Alan Lane reiterated in the most recent earnings announcement.

Read more: MicroStrategy and Silvergate are 2022’s most shorted crypto stocks

Senators not buying it

Critics find Lane’s resolve to be unconvincing. Silvergate currently faces an investor lawsuit alleging that the bank misled investors about its business practices and financial condition, which negatively impacted the stock price. The firm’s stock has plummeted by 90% in 2022 and dipped below $14 by January 17, 2023 — a catastrophic collapse from its November 2021 high of $239.29.

A group of senators spearheaded by Elizabeth Warren mailed letters to major firms with questions about FTX. The letters included one to Silvergate, inquiring why it failed to flag suspicious transactions involving the now-bankrupt exchange.

This inspired Lane’s claim that it takes regulatory compliance seriously in the firm’s post about its Q4 2022 financial results. He also repeated this claim in a letter responding to the Senators’ queries.

“Silvergate conducted significant due diligence on FTX and its related entities, including Alameda Research, both during the onboarding process and through ongoing monitoring,” Lane emphasized in his response.

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