Crypto

Silvergate Stock Crashes Nearly 50% As Bank Grapples With Crypto Crisis

Topline

Silvergate Capital revealed Thursday a series of worrisome financial metrics—including $8.1 billion in withdrawals near the end of last year—connected to the shocking collapse of its top client FTX, sending its stock spiraling, as the cryptocurrency-focused financial institution treads water.

Key Facts

Crypto customers withdrew $8.1 billion from Silvergate over the last three months of 2022, the firm said in its preliminary quarterly report, bringing its total digital asset deposits down 68% from $11.9 billion to $3.2 billion.

To fund that run, which coincided with the high-profile unraveling of Silvergate’s high-profile client FTX, Silvergate sold $5.2 billion worth of debt securities at a $718 million loss and fired 40% of its employees (about 200 layoffs).

Silvergate disclosed Thursday that about $150 million of the bank’s deposits were from bankrupt clients, an apparent reference to FTX’s holdings at the institution, and Silvergate previously said FTX accounted for less than 10% of its deposits as it attempted to assuage investor fears.

In a statement, the company attributed the recent run to a “crisis of confidence across the [crypto] ecosystem.”

Shares of Silvergate dropped 47% in early trading Thursday, and the stock is down about 75% since FTX began to fall apart in early November.

Key Background

Silvergate was one of the first banks to work with crypto clients, branding itself as the leading financial institution in the digital asset space. The company rode the crypto boom to great heights, with its stock gaining more than 1,700% from its $12 per share 2019 initial public offering to its late 2021 peak of $220. But just as Silvergate enjoyed the rapid rise in value and popularity of digital assets, it was crushed by the industry’s deterioration, with its $12.21 share price Thursday its lowest ticker since April 2020. The total market capitalization of crypto tokens globally is about $850 billion, according to CoinGecko, down from $3 trillion in November 2021.

Surprising Fact

Authorities ordered the seizure of $93 million worth of FTX funds held at Silvergate last month, a Wednesday court filing revealed, also taking over or planning to seize more than $460 million worth of shares in retail trading platform Robinhood held by FTX, disgraced CEO Sam Bankman-Fried and related parties.

Tangent

Shares of the crypto exchange Coinbase, which is one of the few publicly traded companies primarily dealing with digital assets alongside Silvergate, fell 13% during early Thursday trading. Coinbase agreed Wednesday to a $100 million payout to settle a probe from New York financial authorities for doing the “bare minimum” to meet compliance and anti-money laundering requirements.

Further Reading

Feds Move To Seize FTX’s Robinhood Shares As Sam Bankman-Fried Faces Fraud Charges (Forbes)

Coinbase Will Pay $100 Million After Regulators Find ‘Significant Failures’ Heightened Risk Of Criminal Activity (Forbes)

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