News has spread that Silvergate Bank, the major banking player in the crypto sector, has declared bankruptcy.
The parent company’s shares plummeted by an incredible 30 percent, triggering a new wave of panic and uncertainty among investors and the public.
The news of the “voluntary” liquidation of its assets had divided the industry community, some thought it was a strategic move, but a few days later came the news of bankruptcy.
Summary
Why did Silvergate Bank announce its closure in the crypto world?
This news came as a shock to many industry players, as Silvergate was known to be a reliable player in the cryptocurrency space. The bank had been active for more than 30 years, and its closure raised questions about the future of the cryptocurrency banking industry.
Silvergate closure announcement was made by Silvergate Capital Corporation, the holding company that controls the bank. The company stated that the closure will be an orderly liquidation of the bank’s operations voluntarily.
This statement also pointed out that the bank’s closure and liquidation plan calls for full repayment of all deposits. This means that all customers who deposited money in the bank will receive it back in full.
The reason behind Silvergate’s closure would be the bearish cryptocurrency market and the failure of several companies in the sector.
These include FTX, the exchange founded by the controversial Sam Bankman Fried, which went bankrupt last November.
Silvergate had financial ties to FTX, which may have contributed to its decision to close.
Another factor that influenced Silvergate’s closure was the collapse of deposits.
According to Kbw analysts, the bank had excess liquidity of $4.6 billion as of Dec. 31, 2022, compared to cryptocurrency deposits of $3.8 billion.
However, in the fourth quarter of 2022, deposits dropped from $8.1 billion to $3.8 billion. This significant drop in deposits is likely due to the bearish cryptocurrency market, which has caused many investors to withdraw their funds from cryptocurrency exchanges and banks.
The future of crypto-related banks
The closure of Silvergate Bank is a significant event in the cryptocurrency space. This bank was known for its expertise in cryptocurrency banking and was a trusted partner for many companies in the industry.
Its closure raises questions about the viability of cryptocurrency banks and the future of the industry as a whole.
One concern is the lack of regulation in the cryptocurrency space. Cryptocurrencies are not regulated like traditional banks, which makes it difficult for regulators to monitor and control the industry.
This lack of regulation has led to several scams and frauds in the industry, which have caused many investors to lose money.
The closure of Silvergate Bank has raised questions about the future of crypto banks. Although Silvergate’s failure is undoubtedly a setback for the industry, it is unlikely to have a significant impact on the growth of crypto banks.
The cryptocurrency industry is still in its infancy, and demand for cryptocurrency-focused banking services will likely continue to grow in the coming years.
The closure of Silvergate may cause other banks to be more cautious and adopt a more measured approach to risk management, but it is unlikely to deter them from entering the sector.
As the cryptocurrency industry continues to mature, we are likely to see new players emerge and existing banks adapt and evolve to meet the changing needs of their customers.
The regulatory landscape
In addition, the regulatory landscape of the cryptocurrency industry is beginning to take shape. Governments around the world are beginning to develop and implement regulations to govern the industry, which could provide greater stability and certainty for banks operating in this space.
This could make it easier for banks to obtain traditional banking services, such as access to the Federal Reserve and deposit insurance, which could help mitigate some of the risks associated with operating in the cryptocurrency sector.
In conclusion, although the closure of Silvergate Bank is undoubtedly a blow to the cryptocurrency industry, it is unlikely to have a significant impact on the growth of crypto banks in the long run.
Demand for cryptocurrency-focused banking services is likely to continue to grow as the industry matures, and we can expect to see new players emerge and existing banks adapt and evolve to meet the changing needs of their customers.
As the regulatory landscape begins to take shape, banks may find it easier to obtain traditional banking services, which could help mitigate some of the risks associated with operating in the cryptocurrency sector.
Overall, the future of cryptocurrency banking looks bright, with considerable potential for growth and innovation in the years ahead.
