Silvergate Capital Corp, a bank specialising in cryptocurrencies, announced on Wednesday that it would willingly dissolve due to losses sustained from the sudden closure of cryptocurrency exchange FTX, sending its stock price 35% lower in after-hours trading. After disclosing that it had sold additional debt securities this year at a loss and that further losses could mean the bank was less than well capitalised, the company warned last week that it was evaluating its ability to operate as a going concern, which ultimately led to the decision to shut down the bank.
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.
Silvergate said in a statement on the matter
The news comes after it was reported on Tuesday night that representatives from the Federal Deposit Insurance Corp. (FDIC) had been dispatched to the company’s offices in La Jolla, California to talk emergency preparations. The complete return of all investments is stated to be part of Silvergate’s wind-down and liquidation strategy.
Silvergate also stated it is evaluating its options for resolving disputes and protecting the worth of its remaining assets. These assets include both unique technology and tax assets. Centerview Partners LLC is the financial adviser the firm is dealing with. Furthermore, Strategic Risk Consultants is aiding in the change project management process, and Cravath, Swaine & Moore PLLC is serving as legal counsel.
As crypto market volatility and bank losses piled up in recent months, bets against the company rose sharply. According to S3 statistics, Silvergate has one of the largest short interest rates among US securities, with about 85% of its liquidity being sold short. Businesses involved in cryptocurrency were Silvergate’s primary clientele. Its Silvergate Exchange Network, which assisted big buyers in moving money into and out of cryptocurrency trading networks, ceased operations last week.
As a consequence of the market crash, the bank has collapsed, making it one of the few non-crypto businesses to fail. Only a small number of financial institutions were willing to take a risk on cryptocurrency clients. Silvergate, however, changed its strategy entirely to focus on the cryptocurrency industry. After the FTX crash, those clients hurriedly withdrew their money from Silvergate. However, a later governmental assault scared off banks that were providing services to crypto businesses, and so they withdrew from the industry.
The California Department of Financial Safety and Innovation, which oversaw Silvergate under a state charter, issued a statement explaining that it was working with its pertinent federal peers to assess the bank’s conformance with financial laws and safety and soundness duties.
Since the FDIC is responsible for insuring the crypto bank’s customers’ assets, it may be the secret to the bank’s salvation. Client assets are insured by the agency, and in the event of a bank failing, the agency assumes management of the bankruptcy process.
