Silvergate Bank's closure is shaking the cryptocurrency market.
Cryptocurrency and digital asset bank Silvergate Bank is closing all its operations and has entered into voluntary liquidation.
Through a release In a statement released Wednesday, Silvergate Bank said the voluntary liquidation of the crypto bank is the best path forward “in light of recent regulatory developments” and current market conditions.
Silvergate claims that will liquidate its assets in an orderly manner and refund deposits of its customers as a whole.
The decision follows the shutdown of the Silvergate Exchange Network (SEN) late last week.
The situation of Silvergate Bank
During a presentation Silvergate Bank has postponed filing its 10-K annual report, citing the need to assess the impact of certain events related to the crypto industry, as well as the sale of additional investment securities and to complete audit processes to comply with increasing regulatory pressure.
Although the bank has entered into voluntary liquidation, it assures that all other deposit-related services remain operational while this process is taking place.
“The company is considering how best to resolve the claims and preserve the residual value of its assets, including its proprietary technology and tax assets,” the crypto bank said in the statement.
Silvergate Bank has engaged Centerview Partners as financial advisor and the law firm Cravath, Swaine & Moore LLP as legal counsel for its liquidation process.
The impact on the cryptocurrency market
The news of its closure has had an impact on the cryptocurrency market, which has seen its capitalisation fall by 1,15% in the last few hours.
Bitcoin is trading below $22.000 per unit, while Ethereum is hovering near $1.530 at the time of writing. Meanwhile, the bank’s stock, represented by the ticker SI, has plummeted by 43,7% to currently trade at $4,90.
On Twitter, investor and financial advisor Scott Melker, known as “The Wolf Of All Streets,” was quick to respond to U.S. Senator Elizabeth Warren’s attacks on the fall of Silvergate Bank.
Melker explained that, like other banks, Silvergate held fractional reserves, that is, a fraction of the amount deposited by its clients as a reserve, so a bank run was imminent.
Likewise, Caitlin Long, founder and CEO of Custodia Bank, stressed that the closure of Silvergate Bank was not triggered by the bear market facing cryptocurrencies. From her Twitter account, Long explained that the collapse of the bank was caused by the $13.300 billion in deposits that the bank's clients could withdraw in minutes, while Silvergate only held $1.400 billion in cash.
“If Silvergate Bank had $13.300 billion in cash, the bank run would not have hurt its capital,” Long said. “It was not a cryptocurrency.” Long directed his explanation of Silvergate Bank’s situation in response to comments from Senator Sherrod Brown.
During the fourth quarter of 2022, following the collapse of the FTX exchange, Silvergate Bank experienced massive withdrawals from its clients. US regulators also launched investigations against the bank earlier this year.
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