What’s happening with Silvergate Bank as crypto clients flee? 
Silvergate may be in financial trouble after delaying government reports...
Good afternoon, friends!
By now the news that Silvergate is in trouble has reached the mainstream and the impact of that is rippling through the centralized crypto industry.
Called a “crypto-friendly” bank because it is one of the few that would work with cryptocurrency companies, Silvergate operated primarily with institutions and not the little guys. Requiring significant funds to start up an account and large balances to maintain those accounts.
The bank shut down its Silvergate Exchange Network last week, which was how the company helped its clients fund their accounts with dollar-pegged stablecoins, last week amid what it called a “risk-based decision” shortly after its stock fell over 59% amid fears that the company could be bankrupt.
This comes shortly after other crypto companies swiftly abandoned the bank including big industry names such as Coinbase, Circle, Bitstamp, Galaxy Digital, and Paxos – all of whom said they would either cut ties or scaled back their operations. Both Microstrategy and Tether quickly affirmed that they had no exposure to the bank.
Silvergate got itself caught up in the meltdown of Sam Bankman-Fried’s fraudulent enterprise FTX and Alameda Research, but to what extent, we do not know yet. Currently, the bank faces class-action lawsuits over its relationship with the firms and has even gotten caught up in a probe by the DOJ.
It’s hard to hold back just a little schadenfreude about the obvious crumbling of the firm as it worked primarily only with large companies and shouldered out smaller businesses who were left to attempt to work with the traditional banking system. And anyone who has operated in the banking system with crypto knows what that landscape is like.
All you need to do is look through Reddit or Twitter and get a cavalcade of horror stories about closed accounts, or hear about someone who has a folder filled with letters from security departments about how the bank doesn’t want people working with crypto.
Of course, that’s not to say that larger crypto companies haven’t run into these sorts of problems bucking up against the global financial system. A recent WSJ report noted that Tether had multiple bank accounts and shell companies in order to maintain their connection to the global banking system (although Tether CTO Paolo Ardoino said that the report was inaccurate).
It’s hard to predict what’s going to happen to Silvergate exactly, but looking at what’s happened to other crypto firms in the past that stated that they were in trouble and then had their clients suddenly pull out – it’s unlikely that there are clear skies in the future for them.
As usual, a few more tidbits of the news – including more details about the how and the way of what’s happened with Silvergate – are below the fold. Keep tuned in to the newsletter for even more news next week, and perhaps we’ll see what happens, who knows maybe there’ll be brighter news to talk about. See everyone on the flip side!
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Blockchain Behind the Scenes
Coinbase, Circle, Paxos, Crypto.com, Gemini cut ties with Silvergate. A growing list of crypto industry giants are cutting ties with crypto-friendly bank Silvergate after it announced it would delay its SEC financial filing amid fears that it might be in financial trouble.