Silvergate Capital To Shut Down Operations

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A major lender to the cryptocurrency sector named Silvergate Capital announced on Wednesday that it is closing down and liquidating its bank. After-hours trading saw a more than 36% decline in the shares.

Together with New York-based Signature Bank, Silvergate has functioned as one of the two primary banks for cryptocurrency businesses. Compared to Signature’s $114 billion in assets, Silvergate has just over $11 billion in assets. FTX, a defunct cryptocurrency exchange, was a significant Silvergate client.

“In light of recent industry and regulatory developments, Silvergate believes that an orderly wind down of Bank operations and a voluntary liquidation of the Bank is the best path forward,” the company said in a statement.

According to a liquidation plan disclosed on Wednesday, all deposits would be completely reimbursed. The firm made no mention of how it intended to handle legal actions brought against it.

Silvergate will get legal counsel from Cravath, Swaine & Moore and financial advice from Centerview Partners.

The Silvergate Exchange Network, or SEN, a payments network that was regarded as one of the company’s major features, was withdrawn less than a week before to the liquidation. Silvergate made it clear in the liquidation statement that all other deposit-related services are still available when the business is shut down. Consumers will be informed if there are any more changes.

In order to determine the “viability” of its business, Silvergate said this week that it would postpone the submission of its annual 10-K for 2022. The corporation acknowledged that a forthcoming regulatory crackdown, including an investigation already under way by the Department of Justice, was a contributing factor in the delayed submission.

Inquiries from Congress and bank authorities, including the Federal Reserve and the California Department of Financial Protection and Innovation, were also cited by Silvergate as reasons for the delay.

Once the bank issued a warning that it was uncertain about its ability to continue operating, cryptocurrency businesses including Coinbase and Galaxy Digital rushed to sever links with Silvergate.

Silvergate has been having difficulties for a while. The company recorded a nearly $1 billion net loss in the fourth quarter after a rush for the exits at the end of the previous year that saw client deposits plunge 68% to $3.8 billion, in addition to furloughing 40% of its workers in January. Silvergate had to sell debt instruments worth $5.2 billion to pay the withdrawals.

The company requested an extra $4.3 billion from the Federal Home Loan Bank. Senator Elizabeth Warren, D-Mass., called attention to the loan, saying it “further injected crypto market risk into the regular banking system.”

Citadel Securities and BlackRock, two prominent investment firms, recently acquired significant holdings in Silvergate, purchasing 5.5% and 7%, respectively.

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