- The Bitcoin price collapse in the second part of 2022 took FTX and other crypto companies, but had not yet affected banks.
- Silvergate is the first victim, with a voluntary liquidation carrying all sorts of fears. To make matters worse, SVB’s collapse occurred the same week.
- Investors fear that a bubble has burst in the cryptocurrency sector. Others claim it is just a purge of entities that were not sustainable.
This week saw a new blow for the world of digital assets. It is the fall of Silvergate Capital, the bank founded in 1988 and that a decade ago began its foray into the world of cryptoassets to focus its business on Bitcoin and blockchain companies.
Silvergate Capital is the first damaged entity in the U.S. banking system after the implosion of digital asset prices in the second half of 2022.
The day after announcing the bankruptcy and after several days of blockchain, the bank’s shares plummeted on Wednesday, March 8, by more than 35 percent, reaching €3 per share, a far cry from the €220 it reached at the end of 2021, before the Bitcoin price crash.
The entity, which closed a major digital asset payment network a few days ago, reported that it was ending the bank’s activity and would carry out a “voluntary liquidation”. “Considering recent regulatory and industry developments, we believe that the orderly closure of the company’s operations and a voluntary liquidation is the best decision we can make,” Silvergate said in a statement after several hours of negotiations with executives of the Federal Deposit Insurance Corporation and in the face of the lack of means to achieve liquidity and moderate the outflow of funds.
Many of the entity’s partners, including Coinbase Global, terminated their relationship with the company last week.
At the same time, Binance assured that it did not suffer any loss of assets from its funds.
Silvergate collapse
Silvergate, which came to be positioned as the second financial entity specialized in cryptocurrencies in the US (it reached almost 12 billion dollars in deposits), assures that in the reduction and liquidation plan is included the reimbursement of all deposits.
The North American banking entity is the latest victim of a succession of cryptocurrency falls after the FTX scandal.
Silvergate, headquartered in California, was a key banking partner for digital currency trading.
The firm, which suffered a $1 billion loss in the last quarter of last year, was unable to avoid the hit from investors who rushed to withdraw nearly $8 billion following the failure of the Sam Bankman-Fried-led company.
Silvergate began its foray into the universe of digital assets a decade ago when it started accepting crypto deposits, in a context where conventional financial institutions avoided entering this market.
Five years later it founded a platform for payments in digital assets that allowed users to transact in cryptocurrencies, just like FTX.
Impact of Silvergate’s collapse on the price of bitcoin
Silvergate’s bankruptcy along with statements by Federal Reserve System Chairman Jerome Powell that he intends to extend the timing of higher rates led bitcoin to fall to $19,800 on Friday, March 10, the worst record in the last three weeks and a far cry from the $67.7k it reached at the end of 2021.
Despite having less intensity, the falls reached cryptocurrencies with less weight such as Ethereum which is at $1.5 thousand.
The bankruptcy of important players in the world of digital assets causes the market capitalization of these assets to lose the trillion dollars.
Investing in Bitcoin