Silvergate is Shutting Down Operations and Voluntarily Liquidating Signature Bank

Silvergate Capital is reportedly shutting down operations and liquidating its Signature Bank following its inability to process transactions and the underlying bank run as a result of a boycott by top Crypto Exchanges— Coinbase, Kraken, Binance, among others. On March 9, 2023, Silvergate Capital announced that it would wind down the business and liquidate Silvergate Bank.

Silvergate is one of the two major digital banking giants in the United States, with $11 billion in assets. The drama ended quickly, Silvergate decided to liquidate the banking business, and the capital behind it was hindered by the US regulatory environment which did not help.

Silvergate Capital promised to repay all deposits in full, while still considering how best to resolve claims and preserve its assets Residual value, including its know-how (acquired Diem technology) and tax assets. This is the first US bank to fail since 2020.

The collapse in the stock price of crypto bank Silvergate marks the decline of yet another industry giant since the FTX debacle. Crypto watchers hoping it can’t get any worse may have one market trend on their side.

”Bankruptcy and fraud enforcement – people tend to see those potentially as bottom signs,” a hedge fund manager and short seller Alan Lane noted. The fund investor has been watching market developments, but does not have any positions in crypto names.

“On one hand, from a classic perspective, this is a time when you’re looking at what and how to buy,” the hedge fund manager said. And yet, on the other hand: “If I’m an American, I would not want any crypto exposure that has any nexus in the US.”

The investor is referring to the US regulatory crackdown, which has mounted in recent weeks with Securities and Exchange Commission Chair, Gary Gensler slapping actions on Kraken Exchange and Paxos, issuer of Binance stablecoin— BUSD, fears are spreading that such watchdog moves are only the beginning.

Silvergate: Crypto Bank Accounts for 50% of USD Deposits and Withdrawals Liquidity. The bankrupt liquidation of this bank is a devastating blow to the liquidity of the currency circle. Lack of liquidity will lead to a large number of sharp rises and falls. To put it bluntly, the money in the currency circle is flowing out of the banker. It is easier to pull and smash the market, and good liquidity is the basis of a bull market.

Senator Elizabeth Warren wrote on microblogging platform Twitter that; “As the bank of choice for crypto, Silvergate Bank’s failure is disappointing, but predictable. I warned of Silvergate’s risky, if not illegal, activity—and identified severe due diligence failures. Now, customers must be made whole and regulators should step up against crypto risk.”

Silvergate was an EXTREMELY illiquid bank going by its balance sheet. Probably the worst illiquid bank in the United States. Other crypto friendly banks are not nearly as illiquid. If they face a run, they likely will not be able to honor withdrawals. Do you know where your exchange banks?

Sen. Sherrod Brown on Silvergate’s failure:

Silvergate is closing because of general bad financial management; crypto and US treasuries exposure, which both decreased in 2022. Crypto exposure plus better financial management would have prevented this. But now it’s an example of “toxic crypto” narrative, ignoring other stuff.

The issue with Silvergate isn’t that they dealt in crypto, it was taking on risks that banks should not be taking on, specifically lending out of customer assets and playing around on leverage without customer’s permission.

Crypto and particularly blockchain had little to do with FTX’s fall. It was significantly the result of straight-up fraud—can happen in any industry. Governments should institute a workable framework or make use of the existing Digital Asset laws we already have so the financial sector doesn’t create another SBF conman as a result of lack of oversight enforcement.