Crypto-focused bank Silvergate Capital Corp. announced Wednesday that it would liquidate and wind down its bank operations after suffering losses due to the collapse of the cryptocurrency exchange FTX.
Last week, the company was evaluating whether it could continue running as a going concern. It reported reducing its capital buffers by selling more debt securities at a loss this year.
This news led to Silvergate’s share dropping more than 42 percent in after-hours trading. It also shows how detrimental the fall of FTX, which filed for bankruptcy in November, is for the digital asset industry.
The California-based bank decided on the plans due to “recent industry and regulatory developments.” It guaranteed that all depositors would be repaid in full throughout the wind-down and liquidation process.
The company said it was designing a scheme to resolve claims while preserving its assets’ residual value, including “proprietary technology and tax assets.”
Since Silvergate is a state-chartered bank, it must adhere to the rules set forth by the Federal Reserve and the state of California.
Clothilde Hewlett, the commissioner of California’s Department of Financial Protection and Innovation, has issued a statement saying that the agency is keeping a close eye on the situation.
Due to investors rushing to withdraw more than $8 billion in deposits, Silvergate reported a loss of $1 billion for the fourth quarter.
Last week, Silvergate lost many of its business partners, including prominent companies like Coinbase Global, Inc., and Galaxy Digital. Around the same time, the bank shut down the Silvergate Exchange Network (SEN), its crypto payments network that provided crypto businesses access to traditional U.S. banking services outside regular business hours.
Ram Ahluwalia, CEO of Lumida Wealth, said that the loss of SEN brought disappointment to the crypto industry.
“It’s more of a strategic loss of critical infrastructure for crypto,” he said, adding that as Silvergate had promised to repay depositors and had performing loans, SEN’s disappearance had a low risk of contagion effect.