Crypto winter puts Silvergate in a tricky position.
Silvergate is on the list of the of FTX´s bankruptcy victims and its affiliated entities. The Bank is in the crosshairs of American regulation due to its connections with Sam Bankman-Fried’s companies. The report on its performance in the fourth quarter of last year shows that the collapse of FTX and Alameda had a significant impact on the company financial health.
The company’s financial position figures illustrate the extent of this exposure. 90% of the bank’s deposits come from crypto companies. At the end of the third quarter of last year, half of the bank’s deposits came from its top ten clients, which include Coinbase, Paxos, Crypto.com, Gemini, Kraken, Bitstamp, and Circle.
Silvergate Faces Changes at FTX and Alameda
The crypto winter puts Silvergate in a difficult position. The bank held funds from Alameda and FTX. Some observers pointed to the risks associated with possible exposure of Silvergate to crypto lending firm BlockFi, which has also filed for bankruptcy.
In light of these growing concerns, Silvergate CEO Alan Lane attempted to reassure the company’s stakeholders in a November 11 statement, asserting that FTX deposits only accounted for less than 10% of $11.9 billion in total client deposits in the bank, as of September 30.
Lane also noted that Silvergate has “no outstanding loans or investments in FTX.” Furthermore, the bankrupt crypto exchange would not be the custodian of SEN leverage loans, which are collateralized by bitcoin (BTC). FTX would not be more than a simple depositor close to the bank.
Silvergate had also tried to minimize its exposure to BlockFi. In a November 28 statement, the company revealed that it had $20 million in customer deposits on the crypto platform, but had no investments in BlockFi. The crypto lending firm would also not be a custodian of Silvergate’s leveraged loans, which are collateralized by bitcoin.
Deposits in Plunge, Sales at a Loss, and Mass Layoff
The abovementioned crisis announcements apparently failed to allay investor and customer fears. The collapse of Terra, Three Arrows Capital, Celsius, FTX, and Alameda has created a crisis of confidence, the consequences of which can be fatal for third-party custodians, whose reserves are insufficient in the event of massive withdrawals of funds by their clients.
According to a January 5 financial statement from Silvergate, total deposits from clients whose activities are related to digital assets amounted to $3.8 billion as of December 31, compared to $11.9 billion. dollars as of September 30. During the last quarter of last year, these deposits decreased by $8.1 billion.
Faced with this significant drop in deposits, Silvergate decided to sell $5.2 billion in debt securities to obtain cash. The sale of these securities and related derivatives resulted in a loss of $718 million during the fourth quarter of 2022.
To sum up, the crypto winter continues at the beginning of 2023. Silvergate and other crypto companies are forced to carry out budget cuts at the expense of their staff. The race for cash continues during these bear markets that have seriously damaged the finances of the giants… with feet of clay for some.
By Audy Castaneda
