Silvergate Bank, a US-based bank with a significant presence in the blockchain industry, recently announced that it has begun the voluntary process of liquidation. The news comes just a day after reports surfaced that the bank was discussing ways to avoid a shutdown with US federal officials. The bank’s shares plummeted after several crypto clients abandoned it earlier this month, coinciding with the delay of the annual 10-K filing report.
Delays in Filing Annual Report
Silvergate Bank attributed the delay in filing its annual report to several factors, including the need to respond to auditor requests and ongoing regulatory inquiries and investigations. The bank also cautioned that its ability to maintain normal operations in the next year might be impacted, which prompted its clients to sever ties.
Silvergate Bank also discontinued its highly utilized Silvergate Exchange Network (SEN) service, which had enabled 24/7 transfers between investors and crypto exchanges. Transferring fiat currency to a crypto exchange via bank transfer is widely viewed as one of the cheapest ways of purchasing crypto (card purchases tend to come with a 2-4% charge). But transfers at most banks can take up to a few days to settle. Silvergate’s SEN was designed to remove this issue by offering instant 24/7 transfers. The service had been described by observers as a big step forward in the integration of crypto and the traditional financial services sector.
Losses and Links to FTX
The bank reported a loss of $1 billion in the final quarter of 2022, primarily due to the collapse of the FTX cryptocurrency exchange. Moreover, concerns about Silvergate’s links to FTX prompted depositors to withdraw $8 billion from the bank in the last quarter of the previous year. Due to the ongoing bankruptcy of BlockFi, Silvergate Bank had to return a deposit of $9.85 million.
Silvergate’s liquidation is another setback for the cryptocurrency industry and a blow to the adoption narrative. Silvergate’s flagship project, the Silvergate Exchange Network (SEN), was instrumental in reducing the barriers to investing in crypto. With approximately $11 billion in total assets, Silvergate Bank’s closure is a significant event for the cryptocurrency industry, particularly for those who viewed the bank as a leader in the space.
Kraken to Establish a Crypto-Focused Bank
Kraken’s decision to establish its own crypto-focused bank is in line with the growing trend of traditional financial institutions entering the cryptocurrency industry. This move highlights the increasing importance of providing streamlined and efficient banking services for cryptocurrency investors and businesses. As Silvergate Bank exits from the market, Kraken’s new venture presents a valuable opportunity for the crypto industry to continue expanding.
Kraken has positioned itself as one of the most reliable and secure cryptocurrency exchanges in the market. The company’s new venture into the banking sector will undoubtedly add more value to its growing reputation. The crypto-focused bank will help investors and businesses alike by providing seamless banking services tailored to the needs of the cryptocurrency industry. The bank’s focus on the crypto sector will likely lead to the development of innovative banking products and services that will ultimately benefit the industry as a whole.
Comparison with Signature Bank
In contrast to Silvergate Bank’s $11 billion in assets, Signature Bank, a crypto-focused New York-based bank, manages $114 billion in assets. Signature Bank is known for its crypto-focused banking services, including a dedicated team of experts that caters to the needs of the cryptocurrency industry. Signature Bank’s success in the cryptocurrency industry highlights the potential for other banks to establish themselves as leaders in the space.
Silvergate Bank also discontinued its highly utilized Silvergate Exchange Network (SEN) service, which had enabled 24/7 transfers between investors and crypto exchanges. The bank reported a loss of $1 billion in the final quarter of 2022, primarily due to the collapse of the FTX cryptocurrency exchange. Due to the ongoing bankruptcy of BlockFi, Silvergate Bank had to return a deposit of $9.85 million. The bank’s liquidation is another setback for the cryptocurrency industry and a blow to the adoption narrative. Silvergate’s flagship project, the Silvergate Exchange Network (SEN), was instrumental in reducing the barriers to investing in crypto.
Silvergate’s Legacy and Impact
Transferring fiat currency to a crypto exchange via bank transfer is widely viewed as one of the cheapest ways of purchasing crypto (card purchases tend to come with a 2-4% charge). But transfers at most banks can take up to a few days to settle.
Silvergate’s SEN was designed to remove this issue by offering instant 24/7 transfers. The service had been described by observers as a big step forward in the integration of crypto and the traditional financial services sector.
With approximately $11 billion in total assets, Silvergate Bank has ceased operations. In contrast, Signature Bank, a crypto-focused New York-based bank, manages $114 billion in assets. Kraken, a renowned US-based cryptocurrency exchange, has announced plans to establish its crypto-focused bank, and new entrants may potentially fill the void left by Silvergate’s closure.
The rise of crypto-friendly banks is a notable trend in the financial services industry. With the growing demand for cryptocurrencies, banks have been seeking ways to integrate digital assets into their existing operations. In 2020, the US Office of the Comptroller of the Currency (OCC) granted permission for banks to hold cryptocurrencies on behalf of customers, which was seen as a major milestone for the industry.
A Remainder of The Regulatory Compliance
The Silvergate Bank liquidation is a setback for the cryptocurrency industry, particularly given the role it played in reducing the barriers to investing in crypto through its SEN service. With the closure of the bank, new players may step in to fill the void left by Silvergate, and the trend of crypto-friendly banks is likely to continue as the demand for cryptocurrencies grows.
The closure also serves as a reminder of the challenges facing the industry, particularly around regulatory compliance and managing risks associated with digital assets. As the industry matures, there will be more scrutiny and regulation, and banks that can navigate these challenges while still providing innovative solutions will be well-positioned to succeed.
