Cryptobank Silvergate shuts down due to market disruptions

Silvergate, the San Diego-based regional lender that has turned itself into a crypto-industry bank, plans to shut down operations due to disruptions in digital currency markets.

Citing “recent industry and regulatory developments,” Silvergate announced Wednesday that “the bank’s voluntary liquidation is the best course of action.” The disclosure sent its shares down more than 30 percent to $3 a share in after-hours trading.

Over the past few years, Silvergate has grown into the largest cryptocurrency bank in the United States, attracting $14 billion in customer deposits and reaching a share price of over $200 at the end of 2021.

However, its fortunes have dwindled since the collapse of FTX, a Bahamas-based crypto exchange. Last week, the bank warned investors in a filing that it could be forced to close, partly blaming the growing problems on ongoing investigations into its operations. The announcement also confirmed that the US Department of Justice is investigating the earlier reports.

Silvergate has long used its ties to FTX to market the bank to crypto clients. FTX and its affiliated trading group, Alameda Research, had accounts with Silvergate, and the exchange’s clients were often instructed to wire money to the bank when they made deposits. At the time of FTX’s bankruptcy filing in November, it was endorsed by FTX founder Sam Bankman-Fried on Silvergate’s website.

Customers have been rushing to withdraw money from Silvergate over the past few months. In January, it reported that customers had withdrawn more than $8 billion, forcing it to sell held-to-maturity assets to fund the run, accumulating a $718 million loss on the sale of securities.

In December, a group of senators wrote a letter to Silvergate asking the company to explain its ties to FTX. “As the impact of the FTX debacle continues to ripple outward, today we see what can happen when a bank over-relies on a risky, volatile sector like cryptocurrencies,” Senate Banking Committee Chairman Sherrod Brown said Wednesday.

Silvergate said it has hired Centerview Partners as a financial adviser and Cravath, Swaine & Moore as a legal adviser to help it wind down its operations.

California’s state banking regulator said it was “monitoring the situation closely” and working with federal regulators to ensure Silvergate’s closure was “safe and expeditious.”