At the beginning of January it was announced that the crypto bank Silvergate Capital is in financial trouble. This company has also run into financial difficulties due to the exposure to the bankrupt exchange FTX had. Unfortunately, it was announced last week that the company has fallen even further. Here you can read exactly what kind of company Silvergate is and why it matters to the crypto industry.
Maybe another crypto bank goes bankrupt
Last year several large companies in the industry went bankrupt due to falling prices. It all started when the Terra (LUNA) ecosystem collapsed, causing a massive chain reaction that can still be felt today. After this, Three Arrows Capital, Celsius, FTX and then Genesis also had a hard time.
Silvergate is in trouble because of FTX. At the beginning of this year it was announced that this company was also experiencing trust problems. Customer names after the fall of FTX $ 8.1 billion. The company decided to pay off $718 million in debt, which was more than all the profits it had managed to make since 2013.
Silvergate connected to crypto exchanges
Technically, Silvergate is a bank. It dates back to the 1980s, so it’s been around for a while. Since the existence of cryptocurrencies let it institutional clients Borrow currency and crypto with, for example, crypto as collateral.
It also offers cash management on for companies. This means that if a company has a lot of money that is not being reinvested, Silvergate can take it over with the aim of making a modest return. It is not known which companies are affiliated with Silvergate for this reason.
Other than that it had it until yesterday Silvergate Exchange Network (SEN). This enabled institutional clients and wealthy individuals to easily and quickly (read: 24/7) send fiat currency to each other. This is not easy in the normal banking system. More than 100 crypto exchanges would be members of this. Unfortunately, it has stopped doing this, apparently the risk or the operational costs were too high to continue the service.
Impact of potential Silvergate bankruptcy unclear
So far, it is not yet clear how big the impact on crypto would be if Silvergate went under. The company has already lost a lot of money, but the impact on the market seems to be limited for now. Also have many companies disclosed that they have been in trouble at Silvergate since no longer allow deposits to their Silvergate accounts.
In addition, some key parts of the industry, such as Tether, have announced that they have no exposure to the crypto bank at all. MicroStrategy has a single loan with Silvergate, otherwise this company also has no risks with the bank. It is clear that it is a large company. In the fourth quarter of 2022, the company had more than $11.3 billion be on the balance sheet.
