Silvergate Capital was one of the biggest casualties following the collapse of the FTX Exchange late last year. The bank, which mostly deals in cryptocurrencies, says the collapse of the exchange triggered $8.1 billion in customer withdrawals over the three months that ended in December. The announcement has rattled the market triggering a 40% plus selloff of the stock.
Silvergate $8.1B Withdrawals
While Silvergate has always insisted that it did not have any outstanding loans or investments in FTX, but its shares have shed more than 60% since the exchange went under. The carnage could continue as there is no way to value underlying assets.
Silvergate operates by catering to the needs of companies with operations in the cryptocurrency industry. It takes their deposits and operates a network that links investors to their crypto exchanges. FTX was one of the exchanges that accounted for about $1 billion of the bank’s deposits.
In the aftermath of FTX filing for bankruptcy, the massive withdrawals resulted in customers’ digital assets deposits in the bank dropping by more than $8 billion to about $3.8 billion. Consequently, Silvergate was forced to sell $5.2 billion of its digital assets at a loss of $718 million to try and bolster its liquidity levels.
The sale of digital assets at a loss also allowed the crypto bank to satisfy the potential deposit outflows. With the dust slowly settling, the bank maintains a cash position in excess of digital assets related to deposits.
Restructuring Drive
In response to the rapid changes in the digital asset industry, Silvergate has taken drastic measures to remain afloat. Consequently, the crypto-focused bank says it will cut 40% of staff, which will result in nearly 200 employees being jobless. The bank has also written off $196 million related to the acquisition of Diem Association technology and assets.
The bank has also halted plans to launch its digital currency. The move does not come as a surprise, as cryptocurrencies are under immense pressure after a rollercoaster in 2022. Silvergate has also confirmed it will delay the launch of a blockchain-based payment solution as sentiments in the industry remain at an all-time low.
Demand for such assets is at an all-time low as investors shun riskier assets in favor of safe havens amid elevated inflation levels and concerns about the global economy plunging into recession. In addition, rising interest rates have also crushed the cryptocurrency sector as investors have turned their attention to high-yielding securities like bonds and securities.
Growing Uncertainty
The collapse of Celsius FTX and Terra Stablecoin has left a sour taste in most investors, all but fueling a vicious selloff wave. Bitcoin, the flagship cryptocurrency, has already plunged below the $20,000 level and is now down by more than 60% from its record highs. With the selloff, most crypto investments have been rendered worthless.
Silvergate Exchange Network Platform continues to attract healthy trading volumes in the fourth quarter despite the deep selloff. The average trading volume stood at $1.3 billion in the fourth quarter, slightly improving from $1.2 billion in the second quarter.