Crypto carnage: $8 billion withdrawn from Silvergate

The bank is suffering from the ongoing crypto winter triggered by the collapse of FTX.
Loukia Papadopoulos
Silvergate logo is displayed on a smartphone and a pc screen.jpg
Silvergate logo is displayed on a smartphone and a pc screen.

Pavlo Gonchar/SOPA Images/LightRocket via Getty Images 

U.S. bank Silvergate, which provides exclusively cryptocurrency services, saw its customers withdraw over $8 billion in the last three months of last year, according to a report by the BBC published on Friday. 

This amounted to around two-thirds of the bank's customers pulling their deposits in October, November, and December 2022. 

The bank was then forced to sell nearly $5.2 billion in assets in order to survive. 

The deductions came as a result of three U.S. regulators warning banks that issuing or holding crypto was "highly likely to be inconsistent with safe and sound banking practices.”

Alan Lane, chief executive of Silvergate, told the BBC the bank was selling assets to cover the withdrawals by customers "in response to the rapid changes in the digital asset industry.” 

As a bank listed on the New York Stock Exchange, Silvergate is regulated within the financial sector which was significantly affected by the collapse of the FTX crypto exchange. 

FTX was once valued at $32 billion before its bankruptcy filing in November and its former head Sam Bankman-Fried has now pleaded not guilty to charges that he defrauded customers and investors.  

The trial and accompanying controversy has seen bankruptcy filings emerge at other companies and declines in crypto values. 

A "crypto winter" has surfaced and has been whipping through the industry since last spring. This has clearly affected Silvergate which acted as a bank for cryptocurrency companies that struggled to get banking services from traditional sources. 

Among its most notable clients was the now bankrupt Alameda Research, owned by Bankman-Fried. 

Bankman-Fried's fall from grace has delivered a significant blow to the company in terms of market confidence. 

A fall from grace affects crypto confidence

Since the disgraced leader’s collapse, investors of all sizes have been pulling their money out of crypto companies seeing nearly billions transferred from companies that store crypto funds.

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Luckily, crypto giants like Binance and Coinbase have survived the recent changes and it appears Silvergate may also do so despite a huge cost to its balance sheet. 

Silvergate only went public four years ago in November 2019. Before that, it was a small U.S. bank.

However, at the market's peak in 2021, it saw its shares increase by more than 1,500 percent.

It took advantage of that growth to attempt to launch its own stablecoin, a cryptocurrency directly tied to an asset such as gold. 

Meanwhile, in January of last year, it acquired Meta's proposed Diem (formerly Libra) stablecoin for a whopping $182 million. 

Selling debt and reducing staff

The bank has now sold the debt to cover the withdrawals and has written off the Diem purchase, as well as having reduced its staff by 40 percent. 

The combined withdrawals have caused the bank to lose $718 million, an amount higher than any of its profits since 2013.

What does this mean for the crypto industry? Will it ever rebound from scandals and uncertainty? Only time will tell.