The holding company for the California-based Silvergate Bank announced on Wednesday that it would begin the process of ending its operations and voluntarily liquidating the bank, ending a long descent for the crypto-focused firm and weeks of speculation about its viability.
With cryptos rise and traditional banks hesitance to work with the volatile sector, Silvergate had established itself as one of the most important partners for the nascent industry, offering key financial services in exchange for soaring profits. By working with cryptos top companies, from Coinbase to FTX, Silvergates share price rose more than 1,500% between November 2019 and November 2021.
The banks fortunes were tied to the industry, with 90% of its deposit base coming from crypto companies. As the bear market set in, Silvergate suffered severe outflows, including $8.1 billion in digital asset deposits in the fourth quarter of 2022 alone, exacerbated by the November collapse of one of its key clients, FTX.
Last week, Silvergate announced that it would be late in filing its annual report with the U.S. Securities and Exchange Commission, citing capital issues and uncertainty over its viability. The delay sparked an exodus of crypto clients, including Coinbase, Circle, and Paxos.
Rumors swirled that the Federal Deposit Insurance Corporation would place the bank into receivership and begin to find a buyer as soon as last Friday. One name floated among the crypto industry was Wells Fargo, although a Wells Fargo spokesperson denied the allegation to Fortune.
Although Silvergate announced on Friday that it would be closing its Silvergate Exchange Network, a 24/7 payments provider for clients, it lasted through the weekend. On Tuesday, Bloomberg reported that Silvergate was in talks with FDIC officials to salvage the bank.
Wednesdays announcement, however, appears to be the end for Silvergate. By liquidating the bank, it is unclear whether it will find a single acquirer for its assets. A press release said that the bank believed that an orderly wind down of Bank operations and a voluntarily liquidation of the Bank is the best path forward. It added that the wind down and liquidation plan would include a full repayment of all deposits.
Silvergate is the first failure of an FDIC-backed bank since 2020 and only the ninth since 2017.
As the impact of FTXs collapse continues to ripple outward, today we are seeing what can happen when a bank is overreliant on a risky, volatile sector like cryptocurrencies, said Sen. Sherrod Brown (D-Ohio), the chair of the Senate Banking Committee, in a statement.
A spokesperson for Silvergate told Fortune that they cannot comment beyond what is already publicly available.
With Silvergates fall, the crypto industry will have limited options for banking services. While some companies have begun to turn to the New York-based Signature Bank, it has signaled that it will reduce its digital assets business. Meanwhile, banking regulators have repeatedly issued guidances about liquidity risks associated with the crypto industrya warning that will reverberate given Silvergates woes.
Theres just a lot of problems that banks see, without a lot of reward, former counsel to the Federal Reserve Bank of Chicago and Dickinson Wright partner Joseph Silvia told Fortune in an interview last week.
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