[Feature] Silvergate: Former Crypto Darling Now Abandoned by the Industry

Recently, there has been a new wave of turbulence for Silvergate.

On Wednesday, Silvergate announced that it was unable to submit its annual report to the U.S. Securities and Exchange Commission on time and that it was facing a capital shortfall. As soon as the news broke, Silvergate's stock price dropped by 60% over the past two days. Subsequently, several cryptocurrency institutions announced that they would terminate their cooperation with Silvergate. The bank, which was once almost the only one that could freely transfer fiat currency to cryptocurrency exchanges and had partnerships with almost every cryptocurrency institution in the United States, is now becoming the object that institutions are scrambling to avoid.

On Thursday, Coinbase announced that it would no longer accept or initiate payments with Silvergate "given recent developments and out of an abundance of caution." Galaxy Digital, a cryptocurrency financial services company, also announced that it had stopped accepting or initiating transfers to Silvergate and added that it had "no significant risk exposure" to the bank. According to statistics, other cryptocurrency companies that have announced the termination of their cooperation with Silvergate including Crypto.com, Bitstamp, Gemini, Circle, and Cboe Digital. Some institutions have also come forward to confirm that they have not cooperated with Silvergate, such as Tether and Paxos.

Unavoidable Strict Regulations and FTX's Collapse
Silvergate was established in 1988 and was a community bank before officially entering the cryptocurrency industry in 2014. In 2019, it became the largest cryptocurrency bank in the United States and went public at the end of that year.

In February of this year, capital began to collectively short Silvergate, and its stock price has shrunk by 98% compared to the high point of $222.13 per share reached in November 2021.

All of this stems from the increasingly strict cryptocurrency regulation in the United States. In regulatory reports, investigated cryptocurrency institutions all pointed to Silvergate playing some kind of "money laundering" role. Indeed, Silvergate has over 1,600 cryptocurrency clients, including Circle, Coinbase, Binance US, Kraken, and other important players in the cryptocurrency market. It has been the preferred bank for over a dozen cryptocurrency companies that were eventually investigated, closed, fined, or bankrupted. In addition, Silvergate is facing collective lawsuits from several law firms.

In terms of its own operations, Silvergate's financial condition is very poor, with a loss of $949 million in 2022. After FTX's collapse, Silvergate handled $8.1 billion in withdrawal requests. To fill this gap, Silvergate had to sell its debt securities and loans. The customers destroyed by FTX's collapse were also Silvergate's customers. According to bankruptcy filings, FTX and its "related entities" held about 20 different accounts at Silvergate.

It is not surprising that institutions have taken action to terminate their partnerships with Silvergate due to concerns about its financial condition. Galaxy Digital, when announcing the termination of its partnership, said, "We are taking this action out of an abundance of caution to ensure the safety of our clients and company assets."