About Silvergate Capital
Silvergate serves crypto-related businesses. Through its Silvergate Exchange Network, which connects investor and exchange bank accounts, it assists institutional investors in moving dollars into and out of crypto-trading platforms.
What is the root cause of deposit drop?
Silvergate was able to withstand such a precipitous drop in deposits because it is not structured like most banks. It divested itself of many of its traditional banking operations and branches in order to concentrate on providing bank accounts to cryptocurrency exchanges and investors. Crypto-related deposits account for roughly 90% of the bank’s total, with almost all of its deposits held in cash or easily tradable securities.
Silvergate Capital Corp reported a sharp drop in fourth-quarter crypto-related deposits on Thursday, as investors alarmed by the failure of industry giant FTX withdrew more than $8 billion of capital, sending shares down nearly 39% premarket.
The crypto-focused bank also announced that it would reduce its workforce by 40%, or approximately 200 employees, in order to cut costs amid an industry downturn.
The dire preliminary earnings report demonstrates the extent of the impact on the digital asset industry of FTX’s bankruptcy in November after failing to cover customer withdrawals, a stunning turn of events for what was once one of the world’s largest crypto exchanges.
Silvergate previously stated that it had no outstanding loans or investments in FTX, but its stock has lost 69% of its value since the exchange’s meltdown, which triggered a wild crypto sell-off.
It planned to take a $196 million impairment charge in the fourth quarter on assets purchased from Meta Platforms Inc-backed Diem Group for the payment solution venture.
Total deposits from digital asset customers fell from $3.8 billion in September to $3.8 billion at the end of December. To maintain liquidity, the company sold $5.2 billion in debt securities at a $718 million loss in the fourth quarter.
Naren is a finance graduate who is passionate about cryptocurrency and blockchain technology. He demonstrates his expertise in these subjects by writing for cryptoetf.in. Thanks to his finance background, he is able to write effectively about cryptocurrency.