The cryptocurrency bank Silvergate will close due to market turmoil

Silvergate, a regional lender based in San Diego that converted itself into a go-to bank for the crypto sector, intends to cease operations in response to market instability in digital currencies.

Citing "recent industry and regulatory developments," Silvergate declared on Wednesday that "voluntary liquidation of the bank is the best path forward." In after-hours trading, its stock fell more than 30 percent to $3 per share after the disclosure.

Silvergate had become the largest cryptocurrency bank in the United States in recent years, drawing up to $14 billion in customer deposits and achieving a stock price of more than $200 by the end of 2021.

However, its fortunes have declined after the bankruptcy of FTX, a crypto exchange based in the Bahamas. The bank told investors in a filing last week that it may be forced to close, citing pending probes into its operations as a contributing factor to its mounting issues. The document also verified previous allegations that the US Department of Justice was conducting an investigation.

Long ago, Silvergate utilized its ties to FTX to sell the bank to crypto clients. FTX and its connected trading organization Alameda Research maintained accounts at Silvergate, and clients of the exchange were frequently instructed to wire deposits to the bank. In November, when FTX filed for bankruptcy, Silvergate's website carried a recommendation from FTX founder Sam Bankman-Fried.

Consumers have hurried in recent months to withdraw funds from Silvergate. In January, it announced that customers had withdrawn more than $8 billion, causing it to liquidate held-to-maturity assets to fund the run, resulting in losses of $718 million.

In a letter sent to Silvergate in December, a group of senators demanded that the corporation explain its ties to FTX. "As the impact of FTX’s collapse continues to ripple outward, today we are seeing what can happen when a bank is over-reliant on a risky, volatile sector like cryptocurrencies," Senate banking committee head Sherrod Brown said on Wednesday.

Silvergate said that it had retained Centerview Partners as a financial advisor and Cravath, Swaine & Moore as legal advisors to assist with the winding down of its business.

The state banking regulator of California stated that it was "cmonitoring the situation closely" and collaborating with federal regulators to ensure Silvergate's shutdown was "safe and expeditious."

By fLEXI tEAM