Silvergate Raced to Cover $8.1 Billion in Withdrawals During Crypto Meltdown

The fall of crypto exchange FTX triggered an attack on Silvergate SI 27.10% Capital Corp., forcing the bank to sell assets at a huge loss to cover about $8.1 billion in withdrawals.

Crypto-related deposits fell 68% in the fourth quarter, the bank said in an early release of some quarterly results. To meet the withdrawals, Silvergate liquidated the debt it held on its balance sheet. The $718 million it lost selling debt far exceeds the bank’s total profits since at least 2013.

The bank has laid off 40% of its staff, or about 200 employees, and said it will restore its businesses. It scrapped a plan to launch its own digital currency, scrapping the $196 million it spent buying technology that Facebook had built in its failed bid to launch a crypto-based payments network.

Silvergate caters to companies in the crypto business, taking their deposits and operating a network that connects investors to crypto exchanges. FTX and other companies controlled by its founder, Sam Bankman-Fried, accounted for about $1 billion of the bank’s deposits.

Their November collapse rocked the crypto market and sent Silvergate shares down sharply.

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Silvergate was able to survive such a large drop in deposits because it is not structured like most banks. It sold many of its traditional banking operations and branches to focus on providing bank accounts for crypto exchanges and investors. Crypto-related deposits account for about 90% of the bank’s total, and it holds nearly all of its deposits in cash or marketable securities.

The bank said it remains committed to crypto and has the funds to handle a “sustainable period of transformation.”

At the end of the fourth quarter, Silvergate said it had more cash on hand, $4.6 billion, than $3.8 billion in outstanding deposits. And it held another $5.6 billion in debt securities like US Treasuries that could be sold quickly. Average daily volume on Silvergate’s network rose in the fourth quarter, the bank said.

“While Silvergate is taking decisive action to navigate the current environment, its mission has not changed,” the bank said in a statement. “Silvergate believes in the digital asset industry.”

Silvergate has faced intense scrutiny over its dealings with Mr Bankman-Fried’s companies, and the explosion of the crypto market has raised questions about the viability of the bank’s business model. A group of federal regulators earlier this week warned banks against getting too much exposure to the crypto market.

Shares of Silvergate are down more than 70% in the past three months, and its shares are heavily shorted. The trade has been lucrative, with shorts worth more than $400 million in the last year, according to S3 Partners.

The stock had rallied on Wednesday, rising 27%, its best percentage gain since 2020.

The bank said the withdrawals were the result of a crisis of crypto confidence. Deposits fell to $3.5 billion in the fourth quarter, before rising again to end the quarter at $3.8 billion.

Silvergate plans to report full fourth-quarter results later this month.

Email David Benoit at [email protected]

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