Silvergate, a crypto-focused lender, has announced that it is winding down its operations and will soon be liquidating its bank. This decision has been made in light of the turmoil that the digital asset market has been experiencing as of late.
Silvergate Bank believes that an orderly wind down of Bank operations and a voluntary liquidation of the Bank is the best path forward. This statement was released on Wednesday, October 10th. The bank’s plan to repay all deposits is sure to reassure customers.
The collapse of Silvergate Bank is a rare example of the volatility of the cryptocurrency market spilling over into the mainstream banking system. Silvergate positioned itself as a gateway to the digital asset space, but its failure highlights the risks associated with this emerging technology.
So far, though, there appears to be little risk of Silvergate’s turmoil spreading to other banks, said Dave Weisberger, the CEO of CoinRoutes, an algorithmic-trading platform that helps banks buy and sell cryptocurrencies.
Silvergate’s collapse was primarily a result of their risky business practices. One of their biggest mistakes was relying too much on short-term deposits, which is what caused them to go bankrupt. This is not like the collapse of FTX, where investors lost their money, but it was still an orderly dissolution.
Cryptocurrencies have been on a downward spiral since January, with the value of Bitcoin, the most popular digital currency, falling from a high of nearly $20,000 in December to about $6,000 today.
Still, Silvergate’s collapse is the latest in a string of failures among prominent crypto-related companies that is fueling calls for greater regulation of digital assets. This downward spiral of cryptocurrencies is concerning to many, as the value of Bitcoin, the most popular digital currency, falls from a high of nearly $20,000 in December to about $6,000 today.
Crypto-related companies are failing left and right, and this is causing many people to call for greater regulation of digital assets.
Senator Elizabeth Warren, a vocal critic of crypto, weighed in on Twitter shortly after Silvergate’s announcement. Warren criticized Silvergate for its decision, stating that the company was “helping to create a financial system that works for the wealthy and powerful instead of everyday Americans.”
As the bank of choice for crypto, Silvergate Bank’s failure is disappointing, but predictable. Now, customers must be made whole & regulators should step up against crypto risk.