Silvergate bank threatens to go bankrupt. A new bankruptcy that would harm the crypto-currency sector, but which could also have repercussions on that of traditional finance.
Until now, bankruptcies in crypto remained in the crypto world. In May 2022, the collapse of the Terra and Luna cryptocurrencies resulted in the loss of $50 billion, but this had little consequence in the traditional economy. All of the back-to-back bankruptcies — and there have been many in 2022 — have also made little ripple beyond crypto. Even the spectacular bankruptcy of FTX spared traditional finance for a time.
But, all that may change with Silvergate, an American bank on the verge of ruin. Its fall could have consequences on many activities.
What is Silvergate?
Silvergate is a classic American bank, established in 1988. Nevertheless, it made a name for itself from 2013 by offering banking services to businesses in the cryptocurrency sector. It stood out then, because at the time, very few institutions in the banking sector dared to venture into this very little regulated environment.
This very upstream positioning enabled Silvergate to very quickly become “ THERE » bank for all major crypto companies, allowing big names like Kraken, Coinbase, FTX or even Crypto.com to have access to permanent dollar liquidity.
Serial problems for Silvergate
Counting FTX among its customers has nevertheless turned to a disadvantage since its bankruptcy in November 2022. The collapse of the crypto exchange, which was until now the second largest in the world, and perceived as one of the most stable , has understandably scared off many investors — including other Silvergate clients.
Immediately after the bankruptcy of FTX, the American bank suffered a real bank run : a very large number of customers wanted to withdraw their money immediately. According to The Guardian, $8 billion was withdrawn from the bank’s coffers during the last months of 2022, a huge unforeseen deficit, which was really difficult to fill.
Since then, Silvergate has been in huge trouble — which, according to The Verge, could have been avoided if everyone hadn’t wanted to withdraw their money at the same time. However, the alarm was sounded on Thursday March 2, 2023, when the company indicated that it was not going to be able to return an important document to the American tax authorities in time. Following this announcement, the price of bitcoin fell by 5% — a sign of the bank’s importance to the crypto sector.
The fact that Silvergate cannot return this document in time is not the only bad news. The bank expects to record nearly $1 billion in losses, and has even declared that it could declare bankruptcy within the year and go into default.
Which crypto companies left Silvergate?
Since March 2 and all the bad news, Silvergate customers have been leaving the bank one after another. For the moment, we can cite:
- the Coinbase exchange platform,
- the Crypto.com exchange platform,
- Bitstamp, a crypto exchange based in Luxembourg,
- Gemini, an exchange platform,
- Circle, the company responsible for issuing the stablecoin based on the BUSD dollar,
- Paxos, another firm specializing in stablecoins,
- Cboe Digital, a trading platform,
- Galaxy Digital, an investment fund.
Regarding the company Tether, which is responsible for the stablecoin USDT and itself controversial, it was not a customer of Silvergate and therefore its customers had nothing to fear on this side.
And now, what about Silvergate?
For now, Silvergate’s difficulties remain, and probably for a long time. The company still needs to clean up its accounts. However, everything suggests that it should either go bankrupt in the coming weeks, or be bought by another bank. According to Fortune, one of the candidates for the takeover of Silvergate would be Wells Fargo, another traditional bank, which has never really invested in the universe of crypto-currencies. So perhaps the crypto issues will continue to impact finance.
But that’s not all. Silvergate has established itself over the years as the banking benchmark for many crypto businesses — and it doesn’t really have a replacement yet. As The Verge recalls, the only two other banks to venture into the same realm as Silvergate were Metropolitan Bank and Signature.
However, the two companies eventually withdrew from the crypto sector after the FTX crash. In December, Signature announced that it was putting $8 billion of its digital assets up for sale, almost all of its positions in the crypto space. As for Metropilotan, the bank said it was out of the middle altogether.
The news of the fall of Silvergate is very hard on crypto companies too. Even though most of the bank’s major customers have been quick to flee, they still need traditional banking services — and right now there aren’t necessarily many institutions willing to take the raises, further weakening and isolating the crypto sector.
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