Silvergate Capital has become the latest victim of the 2022 cryptocurrency collapse. The company has filed for bankruptcy in order to pay its creditors. The story of Silvergate Capital, especially its rise and fall, has a close connection with the turbulent journey of the crypto sector. Every crypto enthusiast should know this story; there are huge lessons to learn. Here we bring it for you!
The Rise and Fall of Silvergate
Silvergate Capital is the parent company of Silvergate Bank – popular for its crypto-friendly status. The bank supported the crypto industry extensively. At the peak of its business journey, the majority of its business activities were focused on the crypto industry.
The period between 2019 and 2021 is regarded as a golden period for the bank, as during that time its deposits grew sharply from $1.8 billion to $14.3 billion. The bank was a close partner of FTX, which was then a rapidly growing cryptocurrency exchange. As we all know, the year 2022 was a tough period for the cryptocurrency industry. It witnessed several shocking failures, including the one of FTX.
These failures jolted the entire industry, especially those with a business model completely reliant on the crypto sector. Unfortunately, Silvergate Bank could not sustain the impact of the 2022 crypto failure. As the collapse created fear in the market, at least $8 billion was withdrawn from Silvergate by its customers in 2022 alone. The company even had to sell its long-term securities at a severe loss as a final resort to withstand the crash. But, no damage control measure proved effective. Finally, in March 2023, the bank ceased its operations. It settled for $63 million with regulators to end various investigations initiated against them by US regulators.
Reason for the Fall of Silvegate: Is It Regulatory Troubles?
Regulators started to tighten their scrutiny against crypto companies, especially after the 2022 cryptocurrency crash. Naturally, Silvergate also had to go through scrutiny. Regulators found fault with the company’s compliance with anti-money laundering laws. Anyway, all the charges against Silveragate were dropped in 2023, when it agreed to pay $63 million to settle probes by the Federal Reserve. Interestingly, it stated in court that it successfully repaid all customer deposits. Notably, the company refused to accept the shutdown of its operation as a failure.
Silvergate’s Final Payout to Stakeholders: What You Should Know
Right now, after all the settlements, the company has at least $163 million in cash left. As per a news report published in Reuters, it will use the cash to distribute it among its stakeholders. All its bondholders and some of its equity holders will receive the payment in full. Unfortunately, there is less chance for common stockholders to receive any payment.
In conclusion, the story of Silvergate exposes the key risks associated with building a business model totally reliant on the crypto industry without considering the volatile nature of digital assets.
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