Silvergate Bank is a Californian bank that mostly deals in
cryptocurrency
A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it. It i ...
transactions.
Concerns have been raised about Silvergate's health following the fall in cryptocurrency prices and the
bankruptcy of FTX
The bankruptcy of FTX is the ongoing liquidation of Bahamas-based cryptocurrency exchange FTX, beginning in November 2022. The collapse of FTX, caused by a liquidity crisis of the company's token, FTT, served as the impetus for its bankruptcy. ...
in 2022.
History
Silvergate Bank was co-founded as a
savings and loan association
A savings and loan association (S&L), or thrift institution, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans. The terms "S&L" or "thrift" are mainly used in the United States; simi ...
in 1988.
In 1996 Silvergate was re-capitalized and reorganized into a bank by Dennis Frank and Derek J. Eisele, but it initially remained quite small with only 3 branches in southern California.
It is now led by CEO Alan Lane and president Ben Reynolds, although Mr Eisele remains on the leadership team as chief credit officer.
In 2013, CEO Alan Lane personally invested in
Bitcoin
Bitcoin ( abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
, and Silvergate launched an initiative to start serving cryptocurrency clients.
After this, the bank grew rapidly, reaching $1.9 billion in assets and 250 clients by 2017.
The company became public in November 2019 at a share price of $13, and by November 2021 the price had risen by 1,580% to $219 due to the
cryptocurrency bubble at the time.
The bank operates a real-time payments system called the "Silvergate Exchange Network" (SEN), which enables
cryptocurrency exchanges
A cryptocurrency exchange, or a digital currency exchange (DCE), is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies. Exchanges may acce ...
, institutions, and customers to exchange
fiat currencies
Fiat money (from la, fiat, "let it be done") is a type of currency that is not backed by any commodity such as gold or silver. It is typically designated by the issuing government to be legal tender. Throughout history, fiat money was sometime ...
such as
US dollar
The United States dollar (symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the official ...
s and
Euro
The euro ( symbol: €; code: EUR) is the official currency of 19 out of the member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 340 million citizens . ...
s.
Silvergate is thought to be the first regulated bank to develop this sort of payment system.
By the third quarter of 2022 it had $12 billion in deposits from 1,677 "Silvergate Exchange Network" (SEN) customers including all major cryptocurrency exchanges and over 1,000
institutional investor
An institutional investor is an entity which pools money to purchase securities, real property, and other investment assets or originate loans. Institutional investors include commercial banks, central banks, credit unions, government-linked co ...
s.
In 2021, Silvergate started trying to launch its own US dollar
stablecoin
Stablecoins are cryptocurrencies where the price is supposed to be pegged to a reference asset, which is either fiat money, exchange-traded commodities (such as precious metals or industrial metals), or another cryptocurrency.
In theory, the p ...
,
and in January 2022, Silvergate acquired
Meta
Meta (from the Greek μετά, '' meta'', meaning "after" or "beyond") is a prefix meaning "more comprehensive" or "transcending".
In modern nomenclature, ''meta''- can also serve as a prefix meaning self-referential, as a field of study or ende ...
's
Diem technology for around $200 million to assist with this (Silvergate was originally intended to be a key issuer of the Diem currency for Meta).
As of late 2022, the stablecoin has still not launched.
In late 2022 — following a fall in cryptocurrency prices and the collapse of many cryptocurrency exchanges and schemes such as
FTX — concerns were raised about potential impacts on Silvergate due to loss of deposits and credit exposure from SEN leverage, as well as potential impacts of Silvergate's issues on the wider cryptocurrency ecosystem due to Silvergate's key role in it.
Some
short seller
In finance, being short in an asset means investing in such a way that the investor will profit if the value of the asset falls. This is the opposite of a more conventional "long" position, where the investor will profit if the value of the ...
s raised the prospect of a
bank run
A bank run or run on the bank occurs when many clients withdraw their money from a bank, because they believe the bank may cease to function in the near future. In other words, it is when, in a fractional-reserve banking system (where banks no ...
.
The share price of Silvergate has fallen 89% from its November 2021 all-time-high to $25, and its deposits have fallen to $9.8 billion.
Silvergate has claimed that it has adequate
liquidity
Liquidity is a concept in economics involving the convertibility of assets and obligations. It can include:
* Market liquidity, the ease with which an asset can be sold
* Accounting liquidity, the ability to meet cash obligations when due
* Liqui ...
, and that it only held FTX deposits and was not exposed to FTX via lending.
Senators
Elizabeth Warren
Elizabeth Ann Warren ( née Herring; born June 22, 1949) is an American politician and former law professor who is the senior United States senator from Massachusetts, serving since 2013. A member of the Democratic Party and regarded as a ...
,
Roger Marshall, and
John Kennedy requested that the bank explain its relationship to FTX in December 2022. By December 2022 deposits at Silvergate had fallen to $3.8 billion.
See also
*
Bankruptcy of FTX
The bankruptcy of FTX is the ongoing liquidation of Bahamas-based cryptocurrency exchange FTX, beginning in November 2022. The collapse of FTX, caused by a liquidity crisis of the company's token, FTT, served as the impetus for its bankruptcy. ...
References
{{reflist
1988 establishments in California
Financial services companies established in 1988
Cryptocurrency companies
Banks of the United States
Companies listed on the New York Stock Exchange