- The Rise and Fall of Silvergate
- Reasons for the Fall: Regulatory Troubles?
- Silvergate’s Final Payout to Stakeholders
Silvergate Capital has become the latest victim of the 2022 cryptocurrency collapse. Let’s delve into the company’s rise and fall, its connection with the crypto industry, and the key lessons learned.
The Rise and Fall of Silvergate
Silvergate Capital is the parent company of Silvergate Bank, known for its crypto-friendly stance. The bank actively supported cryptocurrency companies and reached its peak success between 2019 and 2021, with deposits growing from $1.8 billion to $14.3 billion. Silvergate was a partner of FTX, a rapidly growing cryptocurrency exchange. However, the collapse of FTX in 2022 greatly impacted the entire industry, creating fear in the market and causing Silvergate customers to withdraw at least $8 billion. The bank attempted to stabilize by selling long-term assets at a loss, but these measures proved insufficient. In March 2023, Silvergate ceased operations and paid $63 million to settle various investigations initiated by U.S. regulators.
Reasons for the Fall: Regulatory Troubles?
After the 2022 cryptocurrency crash, regulators heightened scrutiny on crypto companies, and Silvergate was not exempt. Regulators found faults with the company's compliance with anti-money laundering laws. Nonetheless, all charges against Silvergate were dropped in 2023 when it agreed to pay $63 million to settle probes by the Federal Reserve. Notably, Silvergate stated in court that it had fully repaid all customer deposits and refused to accept the closure of operations as a failure.
Silvergate’s Final Payout to Stakeholders
After all settlements, the company has at least $163 million in cash. According to a Reuters news report, these funds will be distributed among stakeholders. All bondholders and some equity holders will receive full payments. Unfortunately, common stockholders are unlikely to receive any payment. This story vividly illustrates the risks of building a business model entirely dependent on the volatile crypto industry.
The story of Silvergate Capital highlights the risks of relying on the volatile cryptocurrency market and the importance of business diversification. It also serves as a crucial reminder for all market participants to consider regulatory and financial risks.
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