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Silvergate shares tumble as crypto bank reveals $8.1 billion drop in deposits

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Customers withdrew $8.1 billion in Silvergate deposits during a “crisis of confidence” late last year, forcing the crypto-focused American bank to sell assets and underscoring how the FTX implosion has hit the regulated financial sector.

The California-based group’s disclosure on Thursday showing that its digital asset customer deposits had shrunk to $3.8 billion on Dec. its shares plummeted as much as 41% in New York trading.

Silvergate, which is a member bank of the Federal Reserve and is listed on the New York Stock Exchange, has come under heavy pressure over the past year as cryptocurrency prices plummeted and several major players went bankrupt. The bank’s share price had already dropped 88% in 2022.

Silvergate has grown from a small community lender to a major crypto bank in recent years and was instrumental in providing services to Sam Bankman-Fried’s now failing crypto empire.

Alan Lane, chief executive of Silvergate, said that the cryptocurrency industry faces a “crisis of confidence, and in this type of situation, many of the institutional players are pulling money out of these trading platforms.”

$ line chart showing US listed stocks in cryptocurrency bank Silvergate

The group said in an interim fourth-quarter earnings report on Thursday that, to meet customer withdrawals and raise cash, Silvergate rushed to sell $5.2 billion of debt at a loss of $ 718 million.

Lane added that the industry has experienced “significant leverage that has started to wane” in the past year, citing the collapse of companies such as Celsius, Voyager and Three Arrows Capital. “This was a much more widespread situation. . . deleveraging of the ecosystem that obviously culminated in the collapse of the FTX.”

Silvergate said $150 million of its deposits were from clients who filed for bankruptcy.

“We had customers who were proprietary traders, market makers who had been doing business with each other for six to eight years, who just stopped doing business with each other and withdrew all their deposits,” said Ben Reynolds, president of Silvergate. He added that some “crypto native” clients “have moved almost completely into US Treasuries.”

The group is laying off 200 employees to “account for the economic realities” facing its business and the cryptocurrency sector, which account for 40% of its staff, he said.

It added that it held $4.6 billion in cash and cash equivalents at the end of December, “which exceeds” the remaining $3.8 billion in deposits and $5.6 billion in US government and agency debt. Silvergate added that it plans to sell “a portion” of the debt in early 2023.

The report did not include a complete accounting of the group’s balance sheet or income statement; Silvergate said it will publish its full quarterly and annual report on January 17.

Silvergate also halted its plans to launch a digital currency and said it would charge $196 million in the fourth quarter related to blockchain payment assets it bought from Diem, the crypto payment project originally backed by Meta. “There are significant hurdles to launching something in the near future,” Lane said.

The group is also facing scrutiny from US lawmakers. Last month, senators including Elizabeth Warren wrote to Lane asking for clarity about Silvergate’s role in accepting client deposits for Bankman-Fried’s crypto investment firm, Alameda Research, which the former billionaire said should go to FTX purse.

“Silvergate appears to be at the center of improper transfers of customer funds,” the senators wrote, adding that their involvement showed a “flagrant flaw.”

Silvergate in December defended its role in accepting deposits for Alameda, saying it had performed “extensive due diligence” and that
“when Silvergate received payments directed to Alameda Research and credited them to the account of the same name. . . this was consistent with the transfer shipper’s instructions and industry practice.”

Additional reporting by Alexandra White in New York

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