Silvergate in Trouble: Crypto Bank Cuts Staff by 40% Amid a 68% Decline in Crypto Deposits
Trouble is brewing for crypto bank Silvergate as the company cuts staff by 40% and sells assets at a loss to cover $8.1 billion worth of customer withdrawals. Furthermore, the company’s crypto-related deposits saw a 68% decline in the fourth quarter of last year.
According to a Thursday report by Wall Street Journal, the dramatic collapse of FTX sparked a run on Silvergate, forcing the bank to sell assets at a steep discount in a bid to cover around $8.1 billion in user withdrawals.
The crypto bank liquidated $5.2 billion of debt securities it was holding on its balance sheet in a bid to meet user withdrawals. Consequently, it incurred a $718 million loss, which reportedly exceeds the bank’s total profits since at least 2013 by far.
Furthermore, Silvergate saw a 68% decrease in its crypto-related deposits in the fourth quarter of the year, the bank allegedly said in an early release of some quarterly results. Total deposits from digital asset customers declined to $3.8 billion at the end of 2022, compared with $11.9 billion on September 30, 2022.
Despite this, the bank remains positive in its commitment to crypto and reportedly has the funding to handle a “sustained period of transformation.”
The bank has also laid off 40% of its staff, which equals about 200 employees. Apart from this, the bank has dropped plans to launch its own digital currency, writing off the $196 million it spent buying the technology that Facebook had built in its failed attempt to start a crypto-based payments network.
Silvergate describes itself as a “leading bank for innovative businesses in fintech and cryptocurrency.” However, its main business appears to have been facilitating payments between crypto hedge funds like Alameda and crypto exchanges like FTX.
The crypto bank is also under investigation for possibly facilitating illicit transactions. On December 6, three US senators wrote a letter to Silvergate to probe the bank’s involvement in customer losses as the FTX exchange collapsed.
At the end of the fourth quarter, Silvergate said it had $4.6 billion compared to its $3.8 billion in remaining deposits. The crypto bank also holds around $5.6 billion in debt securities like U.S. Treasurys that could be sold quickly. It said in a statement:
“While Silvergate is taking decisive action to navigate the current environment, its mission has not changed. Silvergate believes in the digital asset industry.”
Meanwhile, the company’s shares, which lost roughly 88% of their value in 2022, are currently down by more than 37% in the pre-market.
The unprecedented collapse of the Terra ecosystem, the failure of FTX, and the crash of other high-profile crypto companies in 2022 led to one of the worst crypto meltdowns in history that wiped out more than two trillion worth of value from the crypto market.