Silvergate Capital has been forced to take drastic action as a result of its association with FTX and its downfall.
In addition to reducing its business, the bank has laid off around 40% of its workforce, around 200 employees. Silvergate also wrote off $196 million spent on technology developed by Facebook in an effort to launch its own digital currency. The bank was forced to take these measures due to the recent fire sale of its exposure to FTX.
FTX to FireCell
The collapse of crypto exchange FTX triggered the withdrawal of approximately $8.1 billion on Silvergate. The bank said the withdrawal was caused by a crypto crisis of confidence. To cover the deposits, the bank was forced to sell off its assets at heavy losses, which included eliminating the debt on its balance sheet. The $718 million loss from loan sales, however, far exceeded the bank’s total profits since 2013.
Additionally, crypto-related deposits fell 68% in the fourth quarter, according to a preliminary release of results expected later this month. They fell to a low of $3.5 billion before rising again to end the quarter at $3.8 billion.
Over the past three months, Silvergate’s share price has shrunk 70%, which has been a very profitable short sale. According to S3 Partners, short trades in Silvergate shares topped $400 million last year. Although the stock was up 27% on Wednesday, its best percentage gain since 2020, shares fell 40% in early Thursday trading.
Silvergate’s shares began to decline following the November collapse of FTX, due to Silvergate’s association with the latter. The bank takes deposits from crypto companies to operate its network that connects investors to crypto exchanges. FTX and other Sam Bankman-Fried companies contributed nearly $1 billion to the bank’s deposits.
However, unlike FTX, Silverlake was able to escape its solvency crisis through the recent sale of its assets. Nearly all of its crypto-related deposits, accounting for 90% of the bank’s total, were held in cash or liquid securities. Silvergate reported having $4.6 billion in deposits and $5.6 billion in debt securities to cover its $3.8 billion in deposits.
Despite its current difficulties, the bank said it remains committed to cryptocurrencies. “While Silvergate is taking decisive action to navigate the current environment, its mission has not changed,” the bank said. “Silvergate believes in the digital asset industry.”
BeInCrypto has reached out to the company or the person involved in the story for an official statement regarding the recent development, but has yet to hear back.