Crypto bank Silvergate to shut down in face of market turmoil

Silvergate, the San Diego-based regional lender that transformed itself into a go-to bank for the crypto industry, plans to wind down operations in the face of turmoil in digital currency markets.

Citing “recent industry and regulatory developments”, Silvergate on Wednesday announced that a “voluntary liquidation of the bank is the best path forward”. The disclosure sent its stock down more than 30 per cent in after-hours trading to $3 a share.

In the past few years Silvergate had developed into the largest cryptocurrency bank in the US, attracting as much as $14bn in customer deposits and reaching a stock price of more than $200 in late 2021.

But its fortunes have tumbled since the collapse of FTX, the Bahamas-based crypto exchange. Last week the bank warned investors in a filing that it might be forced to close, blaming growing problems in part on pending investigations into its operations. The filing also confirmed previous reports that it was being investigated by the US Department of Justice.

Silvergate long used its ties to FTX as a way to market the bank to crypto clients. FTX and its affiliated trading group Alameda Research had accounts at Silvergate, and the exchange’s clients were often given instructions to wire money to the bank when making deposits. At the time of FTX’s bankruptcy filing in November, Silvergate’s website featured an endorsement from FTX founder Sam Bankman-Fried.

Customers have rushed in the past few months to pull money out of Silvergate. In January it reported that customers had withdrawn more than $8bn, forcing it to sell held-to-maturity assets to fund the run, accruing losses on the sale of the securities of $718mn.

In December, a group of senators wrote a letter to Silvergate asking for the company to explain its ties to FTX. “As the impact of FTX’s collapse continues to ripple outward, today we are seeing what can happen when a bank is over-reliant on a risky, volatile sector like cryptocurrencies,” Sherrod Brown, chair of the Senate banking committee, said on Wednesday.

Silvergate said that it had hired Centerview Partners as a financial adviser and Cravath, Swaine & Moore as legal advisers to assist in winding down its operations.

California’s state banking regulator said it was “monitoring the situation closely” and working with federal regulators to make sure Silvergate’s closure was “safe and expeditious”.