the Rise and Fall of Silvergate’s Cryptocurrency Business

The bank’s own data reveals the rapid acceleration of its novel crypto-banking business and how leaning into digital assets made it vulnerable to the industry’s drama.

Silvergate Bank was one of the few remaining banks that catered to the cryptocurrency industry. In the final months of 2022, as the industry imploded, Silvergate lost more than $8 billion in deposits from its crypto customers. This was exactly what the bank’s regulators had predicted might happen for such institutions.

the Rise and Fall of Silvergate's Cryptocurrency Business

The sudden evaporation of its deposit base was only one of several worries for the La Jolla, California-based lender. The company has faced pressures from U.S. banking watchdogs that have been insisting that banks shouldn’t concentrate on crypto, and its disclosures this week revealed investigations from regulators and the U.S. Department of Justice, plus a suggestion that ongoing audits may require a restating of its financials. This could spell big trouble for the company, as its future hangs in the balance.

CoinDesk’s analysis of the bank’s financial reports over the past several years shows that its one-time crypto strengths are starting to drag it down.

Since 2021, Silvergate has seen a decline in the volume of its Silvergate Exchange Network, with $406 billion in transfers in the first half of 2021, compared to $230 billion in the second half of 2022. This dramatic decline could be due to the dramas of 2022 that shook the crypto sector.

The bank’s asset size reached a high point in the fourth quarter of 2021, at $16 billion. Its most recent report showed it at $11.4 billion. However, this is still below the bank’s peak asset size of $16 billion in the fourth quarter of 2021.

Even the high point of its assets describe a very small bank – the scale of a mid-range community bank – despite its outsized reputation as a core part of the digital assets industry’s U.S. banking presence. A near equivalent for its size in California would be the slightly larger Farmers and Merchants Bank of Long Beach, according to state banking data.

Silvergate Bank is different than other Long Beach community banks in one key way: its capital. The crypto bank’s leverage ratio showed that it maintained just 5.4% of capital against its overall assets in the final quarter of 2022. In the same quarter, the latter bank reported a ratio of 10.9%.

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