Sunday, December 10, 2023

The implication of Silvergate’s voluntary liquidation

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Silvergate is a traditional US bank. It has collapsed and an accompanying development is the plunging of stocks.

Industry experts perceive the development as an aftermath of an all-around meltdown of the global crypto market alongside the fall of FTX, which was a cryptocurrency exchange. Silvergate Capital has now gone down. 

Silvergate Capital used to be a preferred lender for tech firms and startups. The bank now goes into voluntary liquidation.

Let us take a quick look at the history of Silvergate Capital.

In 1987, Silvergate, a traditional bank was founded. Upon the coming of the crypto revolution, the bank lent a vast majority of funds to crypto exchanges. This includes the now-defunct crypto exchange FTX, which used to be worth $32 billion.

In Silvergate’s statement specifying their voluntary meltdown, the bank has specified that the crypto industry is dynamic and a range of regulatory developments have taken place across the recent past. Under such circumstances, the bank adds, the best path forward is a voluntary liquidation of the bank. The bank is hence winding down its operations in an orderly way.

But, even as the bank winds down operations, for its customers, it plans full repayment of all deposits. On Thursday, 9th March 2023, the bank’s shares nosedived by 60%. This amounted to a reduction of $80 billion in the bank’s shares. 

Elizabeth Warren, a US Senator has expressed in a tweet that Sivergate bank’s failure has come by as a disappointment as it used to be a bank of choice. The failure was, nevertheless, predictable.

The Senator added that she had warned of Silvergate’s activities, which were risky, even if not illegal. The time has now come for the regulators to take even more initiatives toward countering crypto risks. This way, the customers can be made whole.

 Silvergate’s shares peaked to reach an all-time high in November 2021. The shares are down by 97% from their value.

Cointelegraph has specified that Silvergate is a tech-focused bank, and earlier, concerns centered on its financial health have been raised. It is noteworthy that Silvergate was servicing crypto-friendly VCs, like a16z and Sequoia.

In the latest financial update given by Silvergate, it had sold its security holdings worth $21 billion for a loss of $1.8 billion. This was to shore up its balance sheet such that additional capital could be raised.

Silvergate Capital had also raised $500 million from General Atlantic, which is a venture firm. This was to raise another $1.75 billion in sales of its shares, for a total of $2.25 billion.

Let us now take a closer look at the sequence of events as they unfolded when Silvergate Capital collapsed, covering the events that led to the collapse.

When Silvergate Capital had gotten involved with FTX, a range of its partners had chosen to cut ties with the bank. The trouble began for the bank when FTX collapsed. The bank’s partners had begun to wonder how much had the bank known about FTX’s actual dealings.

Trouble was looming

Over time, these troubles compounded. The first development that raised concern among investors was delaying the results of the K-10 report by Silvergate by several weeks.

Soon after the above announcement took place, several heavy hitters in crypto, such as Kraken and Coinbase announced that they’d be taking their business elsewhere.

Warning signs kept buzzing right up to the first week of March, wherein Silvergate had announced that they’ll be shuttering their crypto payment network, which was one of the bank’s main selling points for crypto exchanges. 

Right up to this point, there was limited clarity on whether the bank was winding down or pivoting to a different clientele. It was then on 9th March 2023 that Silvergate Capital came up with their Press Release, wherein they made clear their intentions of shuttering the doors. The news of the voluntary liquidation had now become official.

Orderly Winding Down Of Operations

It may not be right to see Silvergate Capital’s collapse in the same light as FTX’s collapse. FTX’s collapse was more like an instant implosion that took place without too much of a warning. Silvergate Capital, on the other hand, conducted an orderly winding down of operations. Nevertheless, it is hard to deny that FTX’s collapse may have had a huge hand to play in Silvergate Capital’s collapse.

The bank has stressed that all customer deposits are to be paid in full.

It is easy to understand now that Silvergate Capital was very much in big trouble since FTX’s collapse. But, they were not bankrupt.

Regulators’ actions had likely made Silvergate Capital feel that they should be winding down while still solvent. In this situation, making a comeback was more or less out of question.

When Silvergate Capital had come up with the statement that had announced its orderly winding down, they were under congress’s scrutiny and were facing inquiries on the behalf of congress members. Investigations by the California Department of Protection and innovation, and the Federal Reserve were also underway at this hour.

Silvergate’s wind-down will be supervised by law firm Cravath, Swaine & Moore LLP, as well as financial advisor Centerview Partners LLC.

Following the liquidation of Silvergate, Signature Bank shall stay as the only main entity in the market that handles crypto-related clients. Only time will specify if the Signature bank will gain popularity among most crypto platforms, or whether crypto platforms will move towards stablecoins as a store of value.


It becomes important to note that this is a case of voluntary liquidation and not bankruptcy. Silvergate won’t have any issues making its creditors whole. The impact on Bitcoin will be limited while being there. This impact won’t be as negative as the Luna-UST crash or FTX fiasco.

It then becomes hard to deny that the impacts are already visible. Market participants are still reluctant to step in because, across the board, the volume has dried up.

#PUSH #bitcoinhindi #bitcoinupdate #cryptonews

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