Silvergate Bank, once considered a leading financial institution in the crypto industry, has suffered a massive blow. During the last few months of 2022, the bank witnessed a loss of over $8 billion in deposits from its customers involved in the cryptocurrency industry. This has come due to the bank’s overreliance on digital assets and its inability to keep up with the fast-paced and volatile nature of the crypto market, media reports said.
Despite being warned by regulators against concentrating too much on crypto, Silvergate focused heavily on the industry. This has now left the bank in a precarious position, with investigations from regulators and the US Department of Justice looming and ongoing audits potentially requiring a restating of its financials.
By examining the bank’s financial reports over the recent years, it appears that the institution may have reached its peak in 2021, with its Silvergate Exchange Network hitting a high of $406 billion in transfers. This slid to $230 billion by the second half of 2022. At $16 billion, the bank’s overall asset size peaked in the fourth quarter of 2021 but has since decreased to $11.4 billion.
In addition to its decreasing deposit base, several big names in the bank’s customer base, including Coinbase, Paxos, Circle Internet Financial, and Galaxy Digital, have been severing ties with the struggling bank. This has left the bank with a major liquidity crisis and very few options for recovery.
While the struggles of Silvergate Bank are not offering a shining path for other institutions to follow, it serves as a warning to traditional banks to be cautious about their involvement in the crypto industry. The Federal Reserve and other banking agencies have warned that they do not want lenders getting overly exposed to digital assets. This recent blow to Silvergate Bank reinforces that warning.
