The encyclopedia · Trading & Investing · Financial decision · 2023
Silvergate was the crypto industry's bank — and the crypto winter killed it in a month
Silvergate was the primary US bank for crypto. When FTX collapsed, depositors pulled $8B. Silvergate was liquidated in March 2023.
Silvergate Capital · 2023-03
What happened
Silvergate Capital Corporation operated Silvergate Bank, a California-based bank that became the primary US banking partner for the cryptocurrency industry. The bank processed billions of dollars in crypto transactions and held deposits for major exchanges including FTX, Coinbase and Gemini.
When FTX collapsed in November 2022, Silvergate's crypto clients rushed to withdraw their deposits. The bank experienced a $8 billion deposit outflow in the fourth quarter of 2022, forcing it to sell assets at a loss to meet withdrawal demands. The bank's stock fell over 90%.
In March 2023, Silvergate announced it would voluntarily liquidate. The case illustrated the concentration risk of serving a single industry: when the crypto winter came, Silvergate's entire deposit base was at risk simultaneously. The bank's fate was tied to the crypto industry's fate, and when the industry crashed, the bank crashed with it.
Why it happened
- Silvergate was the primary US bank for crypto companies, creating extreme industry concentration.
- FTX's collapse triggered $8B in deposit outflows in one quarter.
- The bank sold assets at a loss to meet withdrawals, destroying its capital.
- Silvergate was voluntarily liquidated in March 2023.
The lesson
A bank that serves a single industry is a bet on that industry. Silvergate's deposit base was crypto; when crypto crashed, the bank crashed. Diversification is survival.
Aftermath
Silvergate was liquidated in March 2023. The case, alongside SVB and Signature Bank, prompted a re-examination of bank concentration risk and the regulatory framework for crypto-focused banks.
Sources
- Silvergate Capital — Wikipedia
- Crypto bank Silvergate to wind down operations — The Guardian (Mar 2023)
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