The trouble surrounding Silvergate Bank appears to be getting worse, and the company has attracted a lot of negative attention in recent weeks after it stated it has concerns about how well it can do in the future.
Silvergate Is in Hot Water
Silvergate is a crypto lender that lost billions of dollars in 2022 due to the ongoing volatility and market speculation. That year was easily the worst on record for crypto given how poorly assets did. Bitcoin, for example, lost more than 70 percent off its all-time high of $68,000 per unit, which it achieved in November of 2021. 12 months later, the currency had fallen into the mid-$16K range.
Several assets chose to follow in BTC’s footsteps, and by the time 2022 was coming to an end, the space had lost more than $2 trillion in overall valuation. It was a rough and ugly sight to see. Between all these items were the many bankruptcies that several crypto companies endured, many of which were lenders that were having trouble getting their money back due to the weakening market conditions. Among the firms to enter bankruptcy courts were Block Fi, Three Arrows Capital, and Celsius.
Now, there are many who believe Silvergate will be the next firm to walk through the bankruptcy doorway. The company has seen a sharp decline in its stock price (more than 50 percent at the time of writing) and several companies, including Coinbase, are stepping away from the firm and refusing to continue business relationships with the enterprise.
Bank of America’s Brandon Berman commented on the situation in a recent interview. He said:
We note that in the event an institution becomes ‘undercapitalized,’ bank regulations may restrict certain activities, including asset growth. We maintain our underperform rating.
Michael Perito – lead analyst at KBW – also threw his two cents into the mix, mentioning:
More broadly speaking, while SI remains operational today (i.e., customers can take out and put deposits on its bank platform), this is an interesting event for the crypto industry as Silvergate was the highest regulated and most transparent counterparty in the institutional trading market, bringing into question what the banking rails of crypto could look like in the future.
Affected By FTX
Like many crypto entities, Silvergate was heavily impacted by the FTX collapse, which occurred in November of last year. Trouble began when Sam Bankman-Fried – the man behind the cryptocurrency exchange – commented online that his firm was suffering from a liquidity crunch, and he needed fast cash.
For a while, it appeared as though Binance was all set to buy out the firm, though this failed at the last minute, and FTX – like the many companies mentioned above – was forced to enter bankruptcy proceedings. SBF is now awaiting trial for fraud.
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