Customers of US bank Silvergate, which provides cryptocurrency services, have withdrawn over $8bn (£6.7bn) of their crypto-linked deposits.
Customers pull deposits
Around two-thirds of the bank’s customers pulled their deposits in the final three months of 2022, leading the bank to sell $5.2bn in assets to cover the cost and remain liquid.
The mass withdrawals came after three US agencies warned banks that issuing or holding crypto was “likely to be inconsistent with safe and sound banking practices,” as well as the collapse of the FTX crypto exchange and the subsequent bankruptcy filing of Alameda Research, owned by former FTX CEO Sam Bankman-Fried The case has had ripple effects throughout the crypto industry, leading to declines in value and bankruptcy filings at other firms.
According to an article recently published by the BBC, lan Lane, chief executive of Silvergate, said the bank was selling assets to cover the withdrawals by customers “in response to the rapid changes in the digital asset industry.”
A stunning fall
Silvergate is the latest victim of the so-called “crypto winter” that has been affecting the industry since last spring. The bank, which is listed on the New York Stock Exchange and regulated within the financial sector, occupied a unique position as a bank for cryptocurrency companies that struggled to get banking services from traditional sources.
Before entering the world of cryptocurrency, Silvergate was a small US bank that went public in November 2019. At the peak of the market in 2021, its shares had grown by more than 1,500% due to the massive growth of crypto.
The mass withdrawals have caused the bank to lose $718m, a total higher than its profit since 2013, leading the bank to reduce its staff by 40%, or around 200 people.
Failed stablecoin project
Silvergate also attempted to launch its own stablecoin and spent $182m to acquire the technology behind Meta’s proposed Diem (formerly Libra) stablecoin, which never saw the light of day.
In a filing to the US Securities and Exchange Commission, the bank revealed it had sold debt to cover the withdrawals and had written off the Diem purchase, no longer counting it as an asset.
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