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Crypto bank Silvergate had to undertake a 200-employee layoff and take other drastic measures to facilitate a withdrawal bank run.
During the FTX-triggered crypto meltdown, Silvergate Bank scrambled to cover a massive withdrawal spate and also embarked on a substantial staff layoff. According to the Wall Street Journal, the crypto-focused bank offloaded assets at a loss to cover $8.1 billion in withdrawals. Silvergate also downsized its staff force by a whopping 40% to remain buoyant. Despite these extreme measures taken, the crypto bank says that it remains committed to digital assets.
Silvergate Halts Digital Currency Plans in Addition to Staff Layoff
In addition to its sizable staff layoff and emergency liquidity injection, Silvergate also halted plans to launch a digital currency. Furthermore, the California-based bank wrote off the $196 million linked to its acquisition of Diem Association from Meta (NASDAQ: META).
Silvergate’s shares were trading down 23% at $16.9 during the pre-market trading session after these developments.
According to Silvergate, crypto-related deposits plummeted 68% in the fourth quarter of last year. In order to satisfy the withdrawals, the crypto bank liquidated debt on its balance sheet. However, Silvergate incurred a $718 million loss selling the debt, which far surpasses its total profits since at least 2013.
At the end of 2022’s fourth quarter, Silvergate stated that it had more cash on hand at $4.6 billion than its remaining $3.8 billion deposits. In addition, the bank held another $5.6 billion in debt securities, such as US Treasurys, that were easy to liquidate. Silvergate, which saw a rise in daily average volume on its network in the fourth quarter, also said:
“While Silvergate is taking decisive action to navigate the current environment, its mission has not changed. Silvergate believes in the digital asset industry.”
Silvergate Able to Survive Steep Deposit Decline
Silvergate, which laid off more than 200 employees, could withstand a steep decline in deposits due to its internal structure. The crypto-centric platform is not structured like most other banks and sold off much of its traditional banking branches and operations. This move freed Silvergate to focus exclusively on providing crypto investors and exchanges bank accounts. As it stands, crypto-related deposits make up around 90% of Silvergate’s total. In addition, the bank retains almost all of its deposits in cash or easy-to-liquidate securities.
Despite the tumult brought about in the crypto space by FTX’s collapse, Silvergate pledged to remain committed. According to the bank, it has the funding to weather a sustained period of transformation.
Silvergate’s core service is to custody the deposits of crypto-minded companies. In addition, the platform also operates a network that facilitates business between investors and crypto exchanges. However, late last year, Silvegate came under intense scrutiny over its relationship with ex-FTX CEO Sam Bankman-Fried’s companies. Furthermore, the sudden implosion of FTX in early November rattled the crypto space and sent Silvergate’s stock plummeting.
Since FTX’s bankruptcy, questions regarding the viability of Silvergate’s business model have grown louder. Furthermore, a few days ago, a group of federal regulators warned banks against too much exposure to the crypto market.