Crypto bank Silvergate announces liquidation amid sector turmoil

The cryptocurrency-focused US lender Silvergate is to wind down its operations after it was hit by customer withdrawals following the collapse of crypto exchange FTX.

Its wind-down and liquidation plan includes full repayment of deposits, the bank added. Silvergate reported a $1bn (£840m) loss for the fourth quarter of 2022 after investors raced to withdraw more than $8bn in deposits, forcing it to incur losses as it sold assets to cover the cost of the withdrawals.

Multiple partners of the bank, including Coinbase, a crypto exchange, and Galaxy Digital, a crypto-focused financial services company, cut their links with Silvergate last week. FTX and its affiliated trading arm, Alameda Research, had Silvergate accounts.

Founded in 1988, Silvergate ventured into crypto in 2013. The bank had also operated a mortgage warehouse business, but announced in December it would be winding down that division, citing the rising interest rate environment and reduction in mortgage volumes.

Last week, the bank discontinued the Silvergate Exchange Network (SEN), its crypto payments platform and one of its most popular offerings. That network enabled round-the-clock transfers between investors and crypto exchanges, unlike traditional bank wires, which can often take days to settle.

While risks of contagion are minimal, given that Silvergate has said it will repay depositors and has performing loans, the loss of SEN is disappointing, said Ram Ahluwalia, the chief executive of Lumida Wealth, an investment adviser that specialises in digital assets.

Federal prosecutors in Washington are investigating the company and its dealings with FTX and Alameda Research. In January, three US senators asked Silvergate for details about its risk management and FTX.

More than $1tn was wiped off the value of the crypto sector in 2022, as rising interest rates affected appetite for riskier assets.