Silvergate Raced To Cover $8.1 Billion in Withdrawals During Crypto Meltdown (wsj.com) 17
The collapse of crypto exchange FTX sparked a run on Silvergate Capital, forcing the bank to sell assets at a steep loss to cover some $8.1 billion in withdrawals. From a report: Crypto-related deposits plunged 68% in the fourth quarter, the bank said in an early release of some quarterly results. To satisfy the withdrawals, Silvergate liquidated debt it was holding on its balance sheet. The $718 million it lost selling the debt far exceeds the bank's total profits since at least 2013. The bank has laid off 40% of its staff, or about 200 employees, and said it would pare back its businesses. It shelved a plan to launch its own digital currency, writing off $196 million it spent buying the technology that Facebook had built in its failed attempt to start a crypto-based payments network. Silvergate caters to companies in the crypto business, taking their deposits and operating a network that links investors to crypto exchanges.
FTX and other companies controlled by its founder, Sam Bankman-Fried, accounted for about $1 billion of the bank's deposits. Silvergate was able to survive such a steep decline in deposits because it isn't structured like most banks. It sold off much of its traditional banking operations and branches to focus on providing bank accounts to crypto exchanges and investors. Crypto-related deposits account for some 90% of the bank's total, and it keeps almost all of its deposits in cash or easy-to-sell securities. The bank said it remains committed to crypto and has the funding to handle a "sustained period of transformation."
FTX and other companies controlled by its founder, Sam Bankman-Fried, accounted for about $1 billion of the bank's deposits. Silvergate was able to survive such a steep decline in deposits because it isn't structured like most banks. It sold off much of its traditional banking operations and branches to focus on providing bank accounts to crypto exchanges and investors. Crypto-related deposits account for some 90% of the bank's total, and it keeps almost all of its deposits in cash or easy-to-sell securities. The bank said it remains committed to crypto and has the funding to handle a "sustained period of transformation."
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Re:The value of centralized finance (Score:4, Interesting)
We've had many of these discussions around what would happen if there were a run on a modern-day bank and why they are different than non-bank crypto-companies. This is perfect example. There was a run on a bank and depositors got paid in full. The bank had to take somewhat of a loss as they weren't able to replace the deposits and had to sell debt. Not great for the banks profits, but no depositors lost money. Can't wait to see how the decentralized finance crowd tries to spin this one!
I suspect they will spin it as "see - crypto's safe. You can get your deposits;" while ignoring how the bank used the deposits to buy cash equivalents or kept the cash and when crypto melted down those items didn't so they could cover withdrawals. They were fortunate to have liabilities that dropped in value while their assets didn't. Had it gone the other way and depositors decided to cash out the ending may have been different; even an influx of deposits now could result in problems if crypto recovers. All of a sudden the bank's assets would not have grown enough to cover liabilities if a run occurs.
The investors are probably better off returning all deposits and keeping the $ billion r so that remains after shuttering the bank.
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It's not that Silvergate bought assets (Score:3)
NYC just settled with Coinbase for $50 million around money laundering, so the regulatory noose is tightening though. Without money laundering crypto won't last long. I'm s
Re: The value of centralized finance (Score:3)
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We've had many of these discussions around what would happen if there were a run on a modern-day [...] crypto-companies. This is perfect example. There was a run [...] and depositors got paid in full. [...] Can't wait to see how the decentralized finance crowd tries to spin this one!
Sounds awesome!
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Putting it that way is the next best thing to an outright pants on fire lie, but at least you earn virtue signaling points from the crypto bros.
"Liquidity" is about ease, speed, and sufficiently predictable price stability of converting one asset to another asset, usually one recognized as possessing high liquidity (e.g. gold bullion to yen, etc.).
If you happen to care about liquidity, decentralized exchanges and lending protocols give no guarantee whatsoever, and what they provide is often completely awful
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Please ignore previous comment. Sorry about that.
Re: The value of centralized finance (Score:2)
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Can't wait to see how the decentralized finance crowd tries to spin this one!
They will do what pathological liars usually do when faced with hard facts: They ignore them.
Time to update the website (Score:2)
Yet the collapse of crypto more than negated all profit since they entered the digital currency realm 10 years ago. I wonder if the newly unemployed 40% of staff pushed crypo on their clients as a safe "investment".