Crypto-friendly bank Silvergate in post-FTX suspension
polar storm – Silvergate is on the list of bankruptcy victims of FTX and its related entities. Bank It is the focus of American regulation Sam Bankman-Fried for his affiliation with the companies. In the fourth quarter of last year, its performance report shows that the collapse of FTX and Alameda significantly affected the financial health of the company.
Silvergate Bank: the bank for crypto business
Silvergate provides banking services to cryptocurrency exchanges. Upheavals affecting players in the sector can affect the bank indirectly exposed to cryptocurrencies through the services it offers.
Figures related to the company’s financial position show the extent of this risk. 90% of deposits comes from the bank’s crypto companies. At the end of the third quarter of last year, half of the bank’s deposits came from its ten largest depositors, including Coinbase, Paxos, Crypto.com, Gemini, Kraken, Bitstamp and Circle.
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Silvergate faces FTX and Alameda shakeups
Crypto winter puts Silvergate in a tough spot. The bank took it Funds from Alameda and FTX. Thus, after the bankruptcy of FTX and its subsidiaries, fears about the financial condition of the cryptocurrency company began to arise.
Some observers have also pointed to the risks associated with Silvergat’s possible exposuree to crypto lending company BlockFi, who had also filed for bankruptcy.
Faced with these growing concerns, Silvergate’s CEO, Alan LaneIn a Nov. 11 statement, the company sought to reassure stakeholders, claiming that FTX’s deposits were only representative. Less than 10% As of September 30, the total deposits of customers in the bank amounted to 11.9 billion.
Alan Lane also noted that Silvergate has “no outstanding loans or investments in FTX.” In addition, the bankrupt cryptocurrency exchange will not be the custodian of SEN Leverage loans secured by bitcoins (BTC). FTX would not be like that more than a simple depositor Near the bank.
Silvergate has also tried to minimize its exposure to BlockFi. The company announced this in a statement on November 28 There were $20 million in customer deposits in the crypto platform, but had no investments in BlockFi. The cryptocurrency firm cannot be the custodian of Silvergate’s bitcoin-backed loans.
A sharp decline in deposits, sales at a loss, and mass layoffs
But these crisis releases apparently did not he could not suppress his fears investors and customers. Collapse of Terra, Three Arrows Capital, Celsius, FTX and Alameda crisis of confidence the consequences for third party custodians with insufficient reserves in the event of mass withdrawals by their clients can be fatal.
According to Silvergate’s Jan. 5 financial statement, total deposits from digital asset clients were $3.8 billion as of Dec. 31, compared with $11.9 billion as of Sept. 30. In the last quarter of last year, these deposits thus decreased with 8.1 billion dollars.
Faced with this significant drop in deposits, Silvergate decided to sell $5.2 billion in debt securities to raise cash. This resulted in the sale of securities and related derivatives It lost 718 million dollars During the fourth quarter of 2022.
Another point in the press release reveals the financial difficulties the company is facing. Silvergate will cut its workforce by 20%. This measure covers approximately 200 employees who were to be notified on January 4.
The controversial bailout of America’s crypto-friendly bank
Silvergate therefore sold debt securities to obtain the cash it needed to continue operations. In the press release regarding the financial situation for the 4th quarter of 2022, the company $4.3 billion in loans of Federal Home Loan BankLocated in San Francisco.
The Federal Home Loan Banks consists of 11 parastatal banks providing loans to financial institutions – credit unions, commercial banks, insurance companies, etc.
Although Silvergate had to apply for this loan to save cash, some observers criticized it as a loan. Federal Home Loan Bank given to a bank entering the cryptocurrency space.
In a January 11 post on Twitter, John Reed Stark, former executive director of the US SEC’s Internet Security Office, said, noted American taxpayers through this loan subsidy is provided now” fraud/theft Cryptocurrency in the first US cryptocurrency”.
At the beginning of 2023, the crypto winter continues. Silvergate and other crypto companies have to implement. cuts the budget to the detriment of employees. The race for cash continues in these bear markets, which have taken a serious toll on the Giants’ finances…with feet of clay for some.
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