Arctic storm Silvergate is listed as a bankruptcy victim of FTX and its affiliated entities. the bank In the eyes of the American organization Because of his connections to the Sam Bankman-Fried Companies. The report on its performance in the fourth quarter of last year shows that the collapse of FTX and Alameda had a significant impact on the company’s financial health.
Silvergate Bank: A bank for crypto companies
Silvergate provides banking services to cryptocurrency exchanges. Tremors affecting players in the sector can therefore affect the Bank, which It indirectly exposes itself to cryptocurrency through the services you provide.
Figures on the company’s financial condition show the extent of this exposure. 90% of the deposit The bank comes from crypto companies. At the end of the third quarter of last year, half of the bank’s deposits came from the ten largest depositors, including Coinbase, Paxos, Crypto.com, Gemini, Kraken, Bitstamp, and Circle.
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Silvergate is facing shakeouts from FTX and Alameda
Crypto Winter puts Silvergate in a tough spot. bank contract Funds from Alameda and FTX. Thus, concerns about the company’s financial condition began to surface in the crypto community, following the bankruptcy of FTX and its subsidiaries.
Some observers also noted the risks associated with possible exposure to silveratee to cryptocurrency lending firm BlockFi, who also filed for bankruptcy.
In the face of these growing concerns, Silvergate CEO said, Alan Lanetried to reassure the company’s stakeholders in a November 11 statement, claiming that FTX deposits only represent less than 10% $11.9 billion in total customer deposits at the bank, as of Sept. 30.
Alan Lane also noted that Silvergate has “no outstanding loans or investments in FTX”. Moreover, the bankrupt cryptocurrency exchange will not be a custodian of SEN Leverage loans secured by Bitcoin (BTC). FTX will not be either from the simple depositor near the bank.
Silvergate has also tried to reduce its exposure to BlockFi. In a statement released on November 28, the company disclosed this It has $20 million in customer deposits on the crypto platform, but had no investment in BlockFi. Nor will the crypto-lending company be a custodian of Silvergate leveraged loans, which are secured by bitcoins.
Deposits plummet, sales suck, mass layoffs
However, the versions of this crisis apparently did not Failed to allay fears Investors and clients. The collapse of Terra, Three Arrows Capital, Celsius, FTX, and Alameda created a A crisis of confidence Its consequences can be fatal for third-party custodians, whose reserves are insufficient in the event of massive withdrawals of funds by their clients.
According to a January 5 statement on Silvergate’s financial condition, deposits from customers whose activities relate to digital assets totaled $3.8 billion on December 31, compared to $11.9 billion on September 30. During the last quarter of last year, these deposits were decreased by $8.1 billion.
Faced with such a significant drop in deposits, Silvergate decided to sell $5.2 billion in debt securities to get cash. Resulting from the sale of these securities and related derivatives with a loss of $718 million During the fourth quarter of 2022.
Another point in the press release reveals the company’s financial difficulties. Silverjet will cut its workforce by 20%. This action affects nearly 200 employees, who were notified on Jan. 4.
Controversial bailout of a crypto-friendly US bank
Therefore, Silvergate sold the debt securities to obtain the cash needed to continue operations. The press release about its financial condition for the fourth quarter of 2022 also indicates that the company has received an amount $4.3 billion loan affiliate Federal Home Loan Bankheadquartered in San Francisco.
the Federal Home Loan Banks It consists of 11 quasi-government banks, which lend to financial institutions – Credit unions, commercial banks, insurance companies, etc.
While Silvergate had to resort to this loan to maintain its cash flow, some observers criticized this loan as Federal Home Loan Bank Given to the enterprising bank in the field of cryptocurrency.
In a Jan. 11 post on Twitter, John Reed Stark, a former executive in the SEC’s Office of Internet Enforcement, said: pointed out That through this loan, American taxpayers supported right Now ” Fraud/theft crypto in the first US cryptocurrency rescue”.
The cryptocurrency winter continues at the beginning of 2023. Silvergate and other crypto companies are being forced to do so Budget cuts at the expense of their employees. The race for liquidity continues during these bear markets that have inflicted serious damage on the giants’ finances…with feet of clay for some.
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