Silvergate Bank is on the brink, the rugs will continue until everyone gets it beaten into them that the only safe way to store wealth is self custody bitcoin.
A crisis at Silvergate also could hit the crypto markets since the bank facilitates key transfers between exchanges, and market makers, which do a lot of the buying and selling of Bitcoin, and other tokens potentially exacerbating existing liquidity issues.
Silvergate has faced several challenges since the downfall of the FTX and Alameda Research bankruptcy last year. In January, the bank’s share price declined by 40% in a day after revealing significant fourth-quarter withdrawals following the FTX collapse.
In February, the US Department of Justice launched an inquiry into the bank’s transactions with FTX and its affiliated business, Alameda Research.
The drop in Silvergate’s shares also impacted Signature Bank, which provides banking services to cryptocurrency startups. Signature Bank’s stock hit a 52-week low during the day and has since fallen by approximately 6%.
Silvergate had ceased accepting or initiating payments to or from the bank. Similarly, hedge fund Galaxy Digital and stablecoin issuer Paxos have also implemented the same action.
Many Crypto Exchanges, CEX, using the Swift Network provided by Silvergate have stopped processing transactions with the New York Bank; prominently Coinbase, Binance are seeking for other alternatives.
Furthermore, crypto exchange Gemini founded by the Winklevoss twins in 2014, has also announced that it is halting customer withdrawals and deposits, and wire transfers via Silvergate on its platform.
However, Circle, the issuer of USDC stablecoin, has withdrawn from certain services related to Silvergate Capital, as multiple companies seek to distance themselves from the struggling crypto bank.
Silvergate crashed yesterday and markets are down. Within a timespan of 12 hours we’re talking about Mt. Gox, the worst to happen with Ethereum unlocks, Tether to collapse, Big Crisis to happen and more. Typical scenario in crypto. Silvergate bank liquidity concerns are another short-term sentiment killer.
If $22.8k cannot be overcome, we’ll likely retest $21.4k support level for Bitcoin.
Arthur Hayes, Co founder at BitMEX opines that; Silvergate must be run by the biggest bunch of muppets ever.
Step 1: Take USD deposits from crypto firms and pay no interest
Step 2: Buy 3mth US treasury bonds yielding 4.78%
Step 3: Assume $10 billion of deposits, make $478M a year. That’s all you have to do.
Adam Cochran noted that Silvergate has far less in deposits than now – and yields weren’t this good when they started. So they clearly went for riskier stuff and got destroyed. They got screwed because they only have crypto customers in majority, so when the market gets a shock all their customers withdraw at the same time. They also had to run the bank before rates were so high so the leverage required then was much higher than Arthur describes.
If Silvergate goes bust, are Crypto Exchanges, Bitcoin and USDT at risk of de-pegging, considering tether’s partnership with them?
Silvergate going down and exchanges losing their banking doesn’t impact Bitcoin . The collapse of fiat banking for exchanges will just mean buying/trading goes P2P. Just like in China. There’s still a robust P2P trading ecosystem with exchanges gone.
Bloomberg reported that a crypto fund manager overseeing $400 million is looking to Swiss banks to help plug the gap created by the unraveling of a key payments network operated by ailing US lender Silvergate Capital Corp.
Digital Asset Capital Management used Silvergate’s round-the-clock, real-time network to move funds to and from Coinbase Global Inc.’s platform. But Coinbase, Crypto.com and Gemini are among the exchanges that will no longer accept or initiate payments through Silvergate.
Michael Saylor’s Bitcoin venture, MicroStrategy Inc. claims $205M Bitcoin backed loan from Silvergate has not been affected by bank’s latest issues “the company has a loan from Silvergate not due until Q1 ‘25. There are market concerns are SI’s financial condition. For anyone wondering, the loan wouldn’t accelerate because of SI insolvency or bankruptcy. Micro Strategy BTC collateral isn’t custodied with SI and we have no other financial relationship with SI.”