Original author: Nian Qing, ChainCatcher
according toOriginal author: Nian Qing, ChainCatcheraccording to
Market
, as of February 23, more than 73.52% of the shares of crypto-friendly bank Silvergate Capital (SI) were borrowed and sold short, ranking second among the most shorted stocks in the United States. Silvergate's share price is now at $15.77, a drop of more than 90% from its all-time high of $222.13 set in November 2021.
Capital is collectively shorting the largest crypto bank, including the family office of billionaire George Soros.
After the FTX crash, Silvergate suffered a full range of losses, including losses, layoffs, and regulatory pressure.
, bank records and company information show that Binance transferred about $400 million in 2021 from Binance US's Silvergate Bank account to Merit Peak, a trading firm managed by Zhao Changpeng. Binance will use BAM Trading's Silvergate account to complete the transfer between January and March 2021. BAM Trading is the entity that operates Binance US. The U.S. Securities and Exchange Commission is currently investigating Merit Peak’s relationship with Binance. Then in June 2021, Silvergate terminated its relationship with Binance for unknown reasons.
As one of the U.S. banks that freely transfer fiat currencies to encrypted exchanges, Silvergate has more than 1,600 encrypted clients including Circle, Coinbase, Binance US, Kraken and other leading institutions, and plays a very important role in the encrypted market , but most people don't know much about such an important institution. In this article, ChainCatcher will systematically sort out the turmoil that Silvergate experienced after the collapse of FTX and its special growth process.
first level title
The History of Silvergate: When Small Community Lending Bank Meets Bitcoin
Silvergate is a member bank of the Federal Reserve Bank of California, USA, established in 1988.
The two original founders, Dennis Frank and Derek Eisele, both worked in the real estate industry before. For more than 20 years before 2013, Silvergate's main business was to provide commercial loans and real estate loans and mortgages to local community residents, and this company At its peak, small lenders had assets of no more than $1 billion.
In 2013, Bitcoin entered a big bull market for the first time, breaking through the $1,000 mark for the first time. This small lending bank, which is seeking a comprehensive transformation, is keenly aware of the business opportunities-encryption companies like Coinbase are being shut down by banks.
Major financial institutions are refusing to bank cryptocurrency exchanges and have begun preventing customers from transferring money to buy cryptocurrencies amid concerns about the emerging asset class linked to money laundering and illegal drugs. Coupled with the 24/7 operation mode of the blockchain, traditional banks that are closed on weekends obviously cannot meet the needs of the encryption market.
Shortly after deciding to enter the crypto market, in 2014, Silvergate ushered in its first crypto customer: SecondMarket, which later became Genesis Trading, a well-known crypto broker.
In the ensuing time, Silvergate has increasingly focused on the crypto market, not only selling Silvergate's commercial banking team, but also streamlining its real estate division.
In 2017, Silvergate launched the Silvergate Exchange Network (SEN), allowing crypto investors to instantly transfer USD from bank accounts to cryptocurrency exchanges 24/7. This is the proprietary, near-instant payment network for players in the digital currency industry and has been instrumental to Silvergate's leadership and growth strategy.
By 2019, Silvergate quickly became the largest crypto bank in the US, used by 1600 of the world's top cryptocurrency miners, exchanges and custody platforms to deposit and transfer billions of dollars every month. Only 10 months after Silvergate listed on the New York Stock Exchange in late 2019, Silvergate's stock price climbed to more than $200 at a price of $12 per share.
Silvergate CEO Alan Lane (second from right) rings the opening bell of the New York Stock Exchange in the United States before the IPO begins trading on November 7, 2019
Since then, its management has also begun to explore riskier encrypted services, including the launch of encrypted loan services and attempts at stablecoins.
In August 2019, Silvergate launched an encrypted lending service, funded by its own balance sheet; in May 2021, Silvergate became the exclusive issuer of USD stablecoins for Meta's stablecoin project Diem. After being ordered to stop by US regulators, Diem announces a miscarriage. However, Silvergate still has its own ideas on the issuance of stablecoins, so in early 2022, it spent $200 million to acquire Diem, and announced a high-profile plan to fully launch stablecoins in 2022.Intelligencer according to
Since Silvergate first allowed crypto businesses to deposit dollars in its FDIC-insured banks, $1 trillion has changed hands on its network, the report said. Silvergate's deposits peaked at $14 billion in late 2021, about 90% of which came from its cryptocurrency clients.
first level title
After the FTX crash
The collapse of FTX became an important watershed in the development of Silvergate. At this moment, it is facing many headaches such as sharp stock price drops, losses, layoffs, lawsuits, and regulatory investigations.
In November 2022, the chain effect caused by FTX destroyed Silvergate Bank's two largest customers: about 10% of Silvergate's total assets belonged to FTX, and Silvergate had more than $1 billion locked in FTX; another victim of the FTX collapse Crypto Lending platform BlockFi is also a client of Silvergate. According to the bankruptcy filing, FTX and its "related entities" held about 20 different accounts with Silvergate.
Silvergate's stock price was already plummeting in the bear market, and the FTX incident made it worse, and its stock price fell another 69%. "Sister Wood" Cathie Wood's fund ARK Fintech Innovation ETF sold almost all Silvergate Capital Corp. shares.
Silvergate has processed $8.1 billion in run withdrawals following the FTX crash. To meet the flood of withdrawals, Silvergate was forced to urgently sell about $5.2 billion in debt securities and secure a $4.3 billion loan from the Federal Home Loan Bank (FHLB). According to the financial report for the fourth quarter of 2022, customer deposits under its management plummeted to US$3.8 billion at the end of last year, far lower than the US$11.9 billion in the third quarter, and it incurred a loss of US$1 billion.
Then came a series of cost-cutting measures. In early January, Silvergate announced that it would lay off around 200 people, or 40% of its workforce. On January 27, Silvergate suspended dividend payments on its preferred shares as it sought to preserve capital.
But compared with the loss, the comprehensive investigation of Silvergate by the regulatory authorities may be more "fatal".
As SBF secretly transferred approximately $10 billion in client funds to Alameda Research, Silvergate, as an intermediary bank, was accused of "playing an undisclosed role" in assisting FTX in fraud and crime. US regulators continue to pressure Silvergate to provide information about its relationship with FTX and SBF. Its response to the investigation has also been "vague and incomplete".
In addition to FTX, Silvergate is the bank of choice for more than a dozen crypto companies that have ended up being investigated, shut down, fined, or bankrupt. These include Binance US, Huobi, and more. Court documents show that Silvergate also does business with recently bankrupt cryptocurrency companies Voyager, Celsius and BlockFi.
According to the SEC lawsuit, Silvergate also set up more than a dozen accounts for the convicted Australian encryption Ponzi scheme artist Stefan He Qin; in addition, Silvergate’s former shareholder and customer, the encryption exchange Bittrex, was transferred to places such as Iran and Syria. funds were sanctioned by the U.S. authorities.
The pressure from regulation and litigation has also affected the advancement of Silvergate's other businesses, such as its long-planned stablecoin plan. Last month, Silvergate revealed it had written down the value of the intellectual property and technology it acquired from Diem Group early last year, by about $196 million. This revised figure equates to a loss of 98% compared to the $200 million paid to acquire the assets.
It should be emphasized that the financial regulatory pressure brought about by the collapse of FTX does not only point to the Silvergate family. According to the Wall Street Journal, Bank of America is moving away from cryptocurrency companies. The U.S. SEC is aggressively cracking down on the larger players in the crypto industry, and now bankers are reassessing all exposures in the crypto space, or even cutting ties entirely. At the end of January, the Federal Reserve rejected the application of crypto bank Custodia to join the system membership.
first level title
"Too big to fail"?
Silvergate did not initially enter the industry recklessly. According to its CEO’s statement in an interview, as early as 2013 when Silvergate decided to enter the industry, it had seriously considered regulatory risks and fully understood KYC and anti-money laundering policies. At that time, the team had to hire twice as many banks as the same size compliance staff, and set rules such as "it takes six months for a new crypto exchange to open a bank account".
Even so, regulatory uncertainty continues to lay mines ground for crypto companies. Coupled with the fact that Silvergate, which is plagued by lawsuits, has lost the "credit" on which the bank relies for survival in a short period of time, it is difficult to stand up under heavy losses. Silvergate's crypto customers began to look for alternatives, heading to rivals such as Signature Bank.
But Silvergate appears to be in a "too big to fail" situation again.
As mentioned earlier, Silvergate was assisted by government-funded entities during the crisis. Received $4.3 billion late last year from the San Francisco Federal Home Loan Bank (FHLB). It is reported that Silvergate holds a total of about 4.6 billion US dollars in cash, most of which come from FHLB's advance payment. It's all San Francisco taxpayer money.
