Silvergate Raced to Cover $8.1 Billion in Withdrawals During Crypto Meltdown

The bank has laid off 40% of its staff, or about 200 employees, and said it would pare back its businesses. It shelved a plan to launch its own digital currency, writing off $196 million it spent buying the technology that Facebook had built in its failed attempt to start a crypto-based payments network.

Silvergate caters to companies in the crypto business, taking their deposits and operating a network that links investors to crypto exchanges. FTX and other companies controlled by its founder,

Sam Bankman-Fried,

accounted for about $1 billion of the bank’s deposits.

Their November collapse rattled the crypto market and sent Silvergate’s stock down sharply.

Silvergate was able to survive such a steep decline in deposits because it isn’t structured like most banks. It sold off much of its traditional banking operations and branches to focus on providing bank accounts to crypto exchanges and investors. Crypto-related deposits account for some 90% of the bank’s total, and it keeps almost all of its deposits in cash or easy-to-sell securities. 

The bank said it remains committed to crypto and has the funding to handle a “sustained period of transformation.” 

At the end of the fourth quarter, Silvergate said it had more cash on hand, $4.6 billion, than its $3.8 billion in remaining deposits. And it held another $5.6 billion in debt securities like U.S. Treasurys that could be sold quickly. Daily average volume on Silvergate’s network rose in the fourth quarter, the bank said. 

“While Silvergate is taking decisive action to navigate the current environment, its mission has not changed,” the bank said in a statement. “Silvergate believes in the digital asset industry.”

Silvergate has faced intense scrutiny over its relationship with Mr. Bankman-Fried’s companies, and the crypto market’s implosion has raised questions about the viability of the bank’s business model. A group of federal regulators earlier this week warned banks against being too exposed to the crypto market. 

Silvergate’s stock is down more than 70% in the last three months, and its shares are heavily shorted. The trade has been a profitable one, with shorts up more than $400 million in the last year, according to S3 Partners. 

The stock had rallied on Wednesday, rising 27%, its best percentage gain since 2020.

The bank said the withdrawals were the result of a crypto crisis of confidence. Deposits dropped to as low as $3.5 billion in the fourth quarter, before rising again to end the quarter at $3.8 billion.

Silvergate plans to report full fourth-quarter results later this month. 

Write to David Benoit at [email protected]

The bank has laid off 40% of its staff, or about 200 employees, and said it would pare back its businesses. It shelved a plan to launch its own digital currency, writing off $196 million it spent buying the technology that Facebook had built in its failed attempt to start a crypto-based payments network.

Silvergate caters to companies in the crypto business, taking their deposits and operating a network that links investors to crypto exchanges. FTX and other companies controlled by its founder,

Sam Bankman-Fried,

accounted for about $1 billion of the bank’s deposits.

Their November collapse rattled the crypto market and sent Silvergate’s stock down sharply.

Silvergate was able to survive such a steep decline in deposits because it isn’t structured like most banks. It sold off much of its traditional banking operations and branches to focus on providing bank accounts to crypto exchanges and investors. Crypto-related deposits account for some 90% of the bank’s total, and it keeps almost all of its deposits in cash or easy-to-sell securities. 

The bank said it remains committed to crypto and has the funding to handle a “sustained period of transformation.” 

At the end of the fourth quarter, Silvergate said it had more cash on hand, $4.6 billion, than its $3.8 billion in remaining deposits. And it held another $5.6 billion in debt securities like U.S. Treasurys that could be sold quickly. Daily average volume on Silvergate’s network rose in the fourth quarter, the bank said. 

“While Silvergate is taking decisive action to navigate the current environment, its mission has not changed,” the bank said in a statement. “Silvergate believes in the digital asset industry.”

Silvergate has faced intense scrutiny over its relationship with Mr. Bankman-Fried’s companies, and the crypto market’s implosion has raised questions about the viability of the bank’s business model. A group of federal regulators earlier this week warned banks against being too exposed to the crypto market. 

Silvergate’s stock is down more than 70% in the last three months, and its shares are heavily shorted. The trade has been a profitable one, with shorts up more than $400 million in the last year, according to S3 Partners. 

The stock had rallied on Wednesday, rising 27%, its best percentage gain since 2020.

The bank said the withdrawals were the result of a crypto crisis of confidence. Deposits dropped to as low as $3.5 billion in the fourth quarter, before rising again to end the quarter at $3.8 billion.

Silvergate plans to report full fourth-quarter results later this month. 

Write to David Benoit at [email protected]