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Silvergate Capital: Cryptoland finally gets its proper bank run

Finally a real bankrun in cryptoland. Silvergate Capital announced on Thursday that its digital asset customers’ deposits fell from about $12 billion to just $4 billion in the fourth quarter. To fund these withdrawal requests, the California-based bank first relied on loans and then turned to selling debt in its portfolio valued at $5 billion. These portfolio sales resulted in more than $700 million in paper losses on these transactions.

Silvergate was aimed at institutional crypto investors. One of its main products bot a payment network for digital exchanges and platforms. It had collaborated with FTX who like Celsius Holding and Voyager Digital all went bankrupt when they were unable to fulfill withdrawal requests following a collapse in cryptocurrency prices.

Speaking of dissatisfaction, shares of Silvergate nearly halved on Thursday. The company insisted it retained plenty of excess cash. However, the loss from the sale of securities will eat up his equity. Its book value at the end of September was $1.3 billion.

Though its ambitions have been curtailed, perhaps permanently, its survival shows how crypto-focused institutions that take cash from customers can successfully navigate a liquidity crunch.

According to a November investor presentation, three quarters of Silvergate’s deposit base and equity was held primarily in government bonds. This decision enabled the bank to honor withdrawal requests even when selling investments at a loss.

Silvergate had one in 2021 market capitalization of more than 6 billion US dollars. The price-to-book ratio at the time was a whopping 4.5 times, although returns on equity were often only between 10 and 15 percent. The hyped valuation hinged on hopes that crypto would become a massive asset class while Silvergate offered installation for the industry.

Silvergate argues it hasn’t given up. She just decided to retire for the time being. Unlike others who are using cryptocurrency have to do, it can find a way to survive financially. However, his reputation will not.

Source: Crypto News Deutsch

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