Over $8 billion (£6.7 billion) of cryptocurrency-linked deposits have been removed by customers of US bank Silvergate, which offers cryptocurrency services.
During the final three months of 2022, about two thirds of the bank’s clients withdrew their deposits.
To fund the expense and maintain its liquidity, the bank liquidated $5.2 billion in assets.
A warning from three US agencies that holding or creating cryptocurrency was “very likely to be inconsistent with safe and sound banking procedures” was issued at the same time.
Since Silvergate is a bank that is listed on the New York Stock Exchange, it is subject to financial industry regulation. It is one of only a few companies in this industry that offer bitcoin services.
Sam Bankman-Fried, the former CEO of FTX, has entered a not guilty plea to charges that he deceived investors and customers. One million creditors may have lost their money, according to the prosecution.
The case has shook the whole cryptocurrency industry, causing other businesses to file for bankruptcy and a drop in the value of cryptocurrencies.
Silvergate’s CEO, Alan Lane, stated that due to the “rapid changes in the digital asset business,” the bank was selling assets to satisfy consumer withdrawals.
The industry has been experiencing a chilly “crypto winter” since last spring, and Silvergate is its latest casualty.
As a bank for bitcoin businesses that had trouble obtaining banking services from conventional sources, the so-called crypto bank held a somewhat unusual position in the market.
One of its clients was the now-bankrupt Alameda Research, whose owner Sam Bankman-Fried is facing fraud charges in the US and is awaiting trial.
That is a setback for Silvergate in and of itself, but Bankman-demise Fried’s has dealt the business a greater blow: market confidence.
Since Bankman-empire Fried’s crumbled, investors of all sizes have started transferring billions of dollars from firms that store cryptocurrency funds out of crypto companies.
Silvergate was a small US bank before it entered the world of cryptocurrency, and went public in November 2019.
At the market’s peak in 2021, its shares had grown by more than 1,500%, in no small part due to the massive growth of crypto in this period.
During this time it tried to launch its own stablecoin – a form of cryptocurrency which is directly tied to an asset such as gold, the US dollar or other cryptocurrencies.
And in January 2022, Silvergate spent $182m to acquire the technology behind Meta’s proposed Diem (formerly Libra) stablecoin that never saw the light of day.
In a filing to the US Securities and Exchange Commission, the bank said it had sold debt to cover the withdrawals and had written off the Diem purchase, meaning it is no longer counted as an asset.
It has also reduced its staff by 40% – around 200 people – and altogether the withdrawals have caused the bank to lose $718m, a total higher than its profit since 2013.
Suggest an edit to this article
Check out our new Discord Cyber Awareness Server. Stay informed with CVE Alerts, Cybersecurity News & More!
Remember, CyberSecurity Starts With You!
- Globally, 30,000 websites are hacked daily.
- 64% of companies worldwide have experienced at least one form of a cyber attack.
- There were 20M breached records in March 2021.
- In 2020, ransomware cases grew by 150%.
- Email is responsible for around 94% of all malware.
- Every 39 seconds, there is a new attack somewhere on the web.
- An average of around 24,000 malicious mobile apps are blocked daily on the internet.
