Crypto-Focused Bank Silvergate Collapses, Files Voluntary Liquidation Following Market Meltdown

Silvergate Capital, the parent company of the crypto-friendly bank Silvergate, announced that it is winding down its operations and will voluntarily liquidate the bank after it was hit by the sweeping impact of the turmoil in digital 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 parent company said in a press release Wednesday.

Silvergate also revealed that its liquidation plan includes "full repayment of all deposits," adding that it is also "considering how best to resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets."

The announcement sent Silvergate's stock plummeting over 30% in after-hours trading to $3 per share.

A week ago, Silvergate drew flak following its announcement that it would delay its annual report submission on Form 10-K because of questions raised by independent auditors and accounting firms about its figures.

Silvergate is now under fire, with the White House confirming that it has been monitoring the situation since last week. "It is obviously only the latest company in the cryptocurrency field to experience significant issues," White House Press Secretary Karine Jean-Pierre said while refusing to make a comment specifically on the situation at Silvergate.

"The Department is evaluating compliance with all financial laws, as well as safety and soundness obligations, and is working closely with relevant Federal counterparts," Commissioner Clothilde Hewlett of the California Department of Financial Protection and Innovation said, noting that it too, is keeping tabs of the Silvergate issue.

While Silvergate is a traditional bank and a federally insured lender which marketed itself as a gateway to the cryptocurrency space, its collapse is a unique instance of the crypto market's volatility trickling down into the mainstream banking system.

Also, Silvergate is the latest casualty in a wave of failures and crashes among cryptocurrency and crypto-related businesses over the past few months, which was triggered by the collapse of Terra and further fueled by the controversial crash of the crypto empires FTX and Alameda Research.

The string of events opened up discussions for tighter regulations in the cryptocurrency space and encouraged financial regulators to conduct investigations and crack down on businesses operating in the industry.

"As the impact of FTX's collapse continues to ripple outward, today we are seeing what can happen when a bank is overreliant on a risky, volatile sector like cryptocurrencies," Senate Banking Committee Chairman Sherrod Brown (D-Ohio) said in a recent statement.

"I've been concerned that when banks get involved with crypto, it spreads risk across the financial system and it will be taxpayers and consumers who pay the price. That's why I am continuing to work with my colleagues in Congress and financial regulators to establish strong safeguards for our financial system from the risks of crypto," the senator added.

Aside from Silvergate, its parent company also decided to discontinue the Silvergate Exchange Network (SEN) on March 3.

"Silvergate Bank made a decision to discontinue the Silvergate Exchange Network (SEN), which it announced on March 3, 2023 on its public website. All other deposit-related services remain operational as the Company works through the wind down process. Customers will be notified should there be any further changes," the press release read.