- The bank held $1 billion in deposits from FTX before the exchange collapsed.
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Silvergate bank is closing down operations and voluntarily liquidating the bank, according to a statement made on Wednesday, marking the end of one of the go-to-crypto financial institutions key to the sector.
Unlike the bankruptcies witnessed last year – marred with financial fraud and incriminating court cases – Silvergate has promised to repay its customers and preserve the residual value of its assets.
“In light of recent industry and regulatory developments, Silvergate believes that an orderly wind-down of Bank operations and a voluntary liquidation of the bank is the best path forward. The bank’s wind down and liquidation plan includes fully repaying all deposits.” The press release read.
Last week the La Jolla, Carlifornia-based bank announced that it was shutting down
Silvergate Exchange Network – a round-the-clock platform that allowed investors and crypto exchanges to make transfers – unlike wire transfers operating at limited time frames. Besides, the bank said it was delaying its annual reports and doubted whether it could remain a going concern.
Links to FTX
Silvergate’s problems started when one of its major clients, FTX, filed for bankruptcy protection in November last year, causing a bank run among its retail customers, who redeemed upwards of $8 billion, according to Forbes. It also exposed the lender to the scrutiny of the regulators.
A group of legislators, led by Senator Elizabeth Warren (D-Mass), pinned down Silvergate in December, questioning how it could not flag alleged fraudulent transactions between FTX and Alameda Research, which cost investors billions in losses. Also aggravating the situation, top regulators – the Fed, FDIC, and the OCC – jointly warned the banking players of liquidity risks related to supporting crypto companies.
According to market analysts, crypto firms may face problems related to inbound flows moving forward. Although businesses remain with Signature Bank, another lender big on digital assets, the institution was recently forced to cut down on the larger crypto retail segment following the regulators’ caution.
“(The regulators’) warnings make it difficult for the biggest banks to service the crypto space as we believe they have concluded that the opportunity is not worth the regulatory risk,” Jaret Seiberg, an analyst at Cowen, said.
Meanwhile, the crypto market is flashing red lights following the news, with the market cap down 2% at $990 billion at press time. Bitcoin is down 2% and 7% in the past day and week, trading at $21 479, while Ethereum has dipped to $1,527, per data from CoinMarketCap.
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