Silvergate bank is now in the crosshairs
What is Silvergate bank?
Silvergate Bank is a financial institution co-founded in 1988 in California as a savings and loan association. It was later re-organized into a bank in 1996 and has grown to become one of the largest cryptocurrency-focused banks in the world. The bank’s CEO, Alan Lane, was an early investor in Bitcoin and saw the potential in serving the cryptocurrency industry.
Under his leadership, Silvergate has developed a real-time payments system called the “Silvergate Exchange Network” (SEN) which enables cryptocurrency exchanges and institutions to exchange fiat currencies. By the third quarter of 2022, Silvergate had $12 billion in deposits from over 1,600 customers and was considered a key player in the cryptocurrency ecosystem.
However, the collapse of the cryptocurrency bubble and the fall of many exchanges and schemes, including FTX, have raised concerns about the future of Silvergate. The bank’s share price has fallen 89% from its all-time-high, and its deposits have decreased to $9.8 billion. Some short sellers have even raised the prospect of a bank run
Despite this, Silvergate has maintained that it has adequate liquidity and only held FTX deposits, not lending to the exchange. In December 2022, senators Elizabeth Warren, Roger Marshall, and John Kennedy requested the bank to explain its relationship to FTX. Despite these challenges, Silvergate is determined to continue serving the cryptocurrency industry and is exploring new opportunities such as launching its own US dollar stablecoin.
FTX was a promising cryptocurrency exchange that was quickly rising through the ranks, but its fall from grace was just as rapid and spectacular. The collapse of FTX in November 2022 sent shockwaves through the crypto community and has raised some serious questions about the role of crypto-friendly banks like Silvergate in the crypto industry. In this article, we will explore the collapse of FTX and delve into the recent investigation into Silvergate Bank’s role in the matter.
FTX’s collapse was triggered by a report from CoinDesk, which raised concerns about Alameda Research, the quant trading firm run by Sam Bankman-Fried, FTX’s CEO. The report disclosed that Alameda had invested a significant portion of its assets in FTT, the native token of FTX. This raised some red flags, as Alameda’s investment foundation was also in FTT, not in a fiat currency or other cryptocurrency.
This revelation sparked widespread concern across the crypto community, and soon, the situation spiraled out of control. In just ten days, FTX faced a liquidity crisis and searched for bailout funds, and rival exchange Binance even considered buying portions of the company. But it was too late, and by November 11, 2022, FTX’s CEO had stepped down, and the company filed for bankruptcy.
In the hours following the collapse, FTX was hit by a possible hack, in which hundreds of millions of dollars’ worth of tokens were stolen. Bankman-Fried was arrested in the Bahamas and extradited to the U.S. in late December, where he pleaded innocent to all criminal charges.
Did Silvergate have any role in the collapse?
Meanwhile, Silvergate Bank, the California-based crypto-friendly bank, has come under scrutiny for its role in the FTX collapse. Silvergate reportedly hosted accounts tied to FTX and Alameda Research. After the collapse of FTX, Silvergate reported that worried investors pulled $8.1 billion in crypto deposits in a massive bank run.
To make matters worse, Silvergate announced that it would be cutting its staff by 40%, and its stock dropped 40% in pre-market trading after news of the layoffs broke. Regulators, including Senators Elizabeth Warren (D-Mass.), John Kennedy (R-La), and Roger Marshall (R-Kan) have taken aim at Silvergate, accusing the bank of introducing crypto market risk into the traditional banking system through its dealings with FTX and Bankman-Fried. Warren has even called on banking regulators to investigate what she called “crypto-friendly” banks like Silvergate.
The fall of FTX has raised some serious questions about the role of crypto-friendly banks like Silvergate in the crypto industry. As regulators continue to clamp down on the crypto industry, it remains to be seen what the outcome of the recent investigation into Silvergate’s role in the FTX collapse will be. But one thing is for sure – the swift and damaging collapse of FTX will have repercussions on the international crypto community for years to come.