Warning that it “may not survive” this week, Silvergate Bank has discontinued its SEN platform, which institutions use to move money to cryptocurrency exchanges. Here are the latest developments for Silvergate…
Silvergate lost $8 billion
Silvergate Bank lost more than $8 billion in deposits from crypto clients in the final months of 2022 as its main business block collapsed under the industry’s collapse – just as the bank’s regulators predicted could happen for such institutions. The sudden evaporation of most of its deposit base was just one of several concerns for California-based lending platform La Jolla. The company has faced pressure from US banking watchdogs, who insisted that banks not concentrate on crypto. Their announcement this week spurred investigations by regulators and the U.S. Department of Justice, and a suggestion that ongoing audits may require restatement.
On top of all this, one-off crypto powers are starting to pull the bank down, according to CoinDesk analysis of the bank’s financial reports over the past few years. Most of the raw numbers reported by Silvergate over the years reveal an institution that may have peaked in 2021, long before the dramas of 2022 rocked the crypto industry. For example, the volume of Silvergate Exchange Network peaked in the first half of 2021, with transfers of $406 billion falling to $230 billion in the second half of 2022.
Cryptocurrency company, actually quite small
The total asset size of the bank also reached a high point with $16 billion in the fourth quarter of 2021. Its most recent report showed it to be $11.4 billion. Even the high point of its assets defines a very small bank (the scale of a medium-sized community bank) despite the crypto-asset industry’s great reputation as a core part of the US banking presence. Nearly the equivalent of its size in California would be the slightly larger Farmers and Merchants Bank of Long Beach, according to state banking data.
But one of the main differences between Silvergate and the more traditional Long Beach community bank is the basic measure of their capital. The crypto bank quickly slipped into the last quarter of 2022, achieving a leverage ratio revealing it holds only 5.4 percent of capital against its total assets. The second bank reported a rate of 10.9 percent in the same quarter. Under US bank equity rules, 5 percent is the edge of the abyss and beyond that, the bank descends into regulators’ emergency response zone.
Coinbase, Paxos, Circle; moved away from Silvergate
One of the most dramatic declines to watch in Silvergate’s publicly available data was the deposit issue. Silvergate has identified the number of crypto-asset clients it works with each quarter, and that community has steadily grown to 1,620 last quarter – most of them identified as institutional investors, but over 100 were “crypto-asset exchanges.” However, the deposits of these crypto clients fell from almost $12 billion in the third quarter of last year to just under $4 billion at year-end.
The amount has obviously dropped much more than it currently does, as several big names in its customer base have severed ties. Coinbase, Paxos, Circle Internet Financial and Galaxy Digital were among those making public comments by distancing themselves from the embattled bank. A traditional, regulated custodian could not do without a deposit base, and Silvergate’s vaults were quickly depleted as major crypto clients grappled with their own bankruptcies, bankruptcies, and legal disputes that required an instant drain of their liquid cash last year.
Cryptocurrency platform shuts down SEN platform
Finally, Silvergate Bank has discontinued its SEN platform, which institutions use to move money to crypto exchanges. The company announced this development on its website on Friday evening. SEN is a 24/7 trading service that bank customers can use to transact between each other at any time, including night and weekend. Bank; Binance US served a number of major crypto firms, including Kraken, Gemini, and ErisX.
Silvergate had a rough week after announcing Wednesday that it would delay submission of its annual report due to questions from its auditors. In the same statement, the bank acknowledged that it is facing investigations by bank regulators and the U.S. Department of Justice, saying its ability to exist with “continuous concern” over the next year may be questionable. As we reported on cryptokoin.com, the stock price fell by about 60 percent on Friday before stabilizing somewhat.
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