The small institute from California is fully committed to the crypto business, but since the FTX bankruptcy even the most risky customers have been running away from it. The turbulence is also continuing among other providers, and the regulators are warning about their business models.
A suspicious look at the price board.
What can be expected when a small, unknown, less successful real estate bank enters the business with dubious crypto assets? First it seems to grow enormously, then it goes public via a holding company, where the prices initially go through the roof – and then crash a good two years later. This is what happened with Silvergate, a Californian bank that apparently offered lucrative banking services to the crypto scene.
Distrust drives customers to flee
The company was shaking these days its shareholders up with the disclosureto have survived a run on his deposits in the past few weeks. Investors would have withdrawn a good 8 billion dollars or around 70 percent of all parked funds, which came mainly from the crypto scene and in part even from Sam Bankman-Fried’s bankrupt company FTX. In the eyes of experts, this development is not only a sign of crisis and a warning for others, but is also likely to draw the supervisory authorities into action.
Indeed, the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency – the US Federal Reserve, the Deposit Insurance Fund and the Treasury Department – unusually a common warning to banks that work with the crypto scene and expressed concern about related business models. “It is important that risks from the crypto scene do not jump over to the regular financial system,” it says, among other things.
While Silvergate is confident of remaining liquid and able to continue with the crypto business, recent developments speak for themselves. In fact, the financial company had to quickly sell about half of its securities portfolio to keep up with the outflow of funds. The hasty sale of bonds worth around 5 billion dollars resulted in losses of a good 700 million currency units, and further losses in the sale of securities for the repayment of large loans are foreseeable.
Long-time clients have bailed out in a hurry after the collapse of Bankman-Fried’s exchange operator FTX and its investment firm Alameda Research, as suspicions about the soundness of Silvergate’s balance sheet have increased – just as happens with a bank run. The scams on the scene have shaken public confidence, sending digital asset prices plummeting and causing huge losses for FTX clients and crypto investors around the world. However, Sam Bankman-Fried has pleaded not guilty to the fraud charges.
Coinbase doesn’t take regulation very seriously
Things are not only turbulent at Silvergate, but other companies in the crypto scene, which was incredibly hyped until recently, also have to deal with inquiries from regulatory authorities or even allegations from public prosecutors. Skeptics fear further bankruptcies are only a matter of time.
Coinbase, for example, the American crypto broker whose boss Brian Armstrong had regularly boasted about his “compliance with the rules” in the past, had to agree a $100 million settlement with the regulators in New York for failure to combat money laundering. Half of this sum is due as a fine, while the rest is intended to improve compliance systems.
That New York State Department of Financial Services had described the methods and procedures for complying with anti-money laundering regulations as “immature and inadequate”. For a cursory look at the solidity of Coinbase’s business model, look at the stock’s performance on Wall Street — it has now lost more than 90 percent of its value since going public.
SEC prohibits Binance from acquiring assets
The upheavals in the crypto scene have long since led to layoffs. Silvergate, for example, announced that it would lay off 40 percent of the workforce due to the enormous difficulties. The crypto broker Genesis, which had to stop withdrawing deposits from its loan program in November, says it will send around 30 percent of its staff into the desert. The ailing company recently announced that it needed more time to resolve its financial difficulties.
The sudden collapse of FTX had roiled the digital asset market and indirectly caused Genesis to run into liquidity problems. So far, the company has not been able to raise fresh money. The “rescuers” who were addressed complained above all about the non-transparent relationships between Genesis and other affiliated companies that are part of Barry Silbert’s Digital Currency Group. The latter has now decided to close its asset management department – the latest consequence of the enormous upheavals in the crypto industry.
Apparently, the insolvent crypto company Voyager Digital is not coming out of its low either. Finally, in the past few days, the US Securities and Exchange Commission (SEC) has objected to the sale of alleged assets worth $1 billion to Binance.US. The purchase agreement on which the deal is based does not contain enough details about the possibilities of the American branch of the international crypto broker Binance to actually complete the transaction, it was said. The SEC’s lawyers asked for more information about what the American business will actually look like after the transaction and how customers’ assets will be protected.
Binance itself has been the largest crypto broker in the world since the FTX bankruptcy. However, in the eyes of skeptics, the company is too opaque because it is not clear how solid it really is financially and where it is headquartered. Historically, it has also tended to circumvent rather than conform to regulatory rules. This is a mixture that gives reason to fear further turbulence – not only for this company, but in the entire scene.