From Crypto Darling to Bankruptcy: What Led to Silvergate Bank’s Downfall

Crypto-focused lender Silvergate said it is winding down operations and will liquidate the bank after being financially pummeled by turmoil in digital assets. The company cited the prolonged crypto bear market and the resulting credit squeeze as the reasons for its decision.

What Led to Silvergate Bank's Downfall

Silvergate Bank announced on Wednesday that it believes an orderly wind down of its operations and a voluntary liquidation is the best path forward. This announcement comes in light of recent industry and regulatory developments. The bank’s plan includes “full repayment of all deposits,” it said.

Silvergate’s collapse is a prime example of the volatility of the crypto market spilling over into the mainstream banking system. The bank positioned itself as a gateway to the digital asset space, but ultimately fell victim to the crypto market’s instability.

Silvergate’s turmoil doesn’t seem to be spreading to other banks, according to Dave Weisberger, CEO of CoinRoutes. This is good news for the crypto community, as it could mean that the banks are finally starting to take digital currencies seriously.\

Silvergate’s collapse was primarily due to their inadequate risk management. One such example was their reliance on short-term deposits which are more volatile, while lending or investing at a longer duration. This caused an orderly dissolution.

Cryptocurrencies have been on a wild ride in 2018, with the prices of Bitcoin and Ethereum soaring and then crashing. This volatility has caused a number of high-profile cryptocurrency companies to fail, including the digital asset exchange BitGrail and the mining company Giga Watt. Now, the collapse of Silvergate Bank has added to the list.

Senator Elizabeth Warren, a vocal critic of crypto, weighed in on Twitter shortly after Silvergate’s announcement. Warren criticized the company for its decision, stating that “the whole crypto world is collapsing.”

Silvergate Bank’s failure is disappointing, but not surprising, given that it has been one of the most prominent banks catering to the cryptocurrency industry. Now, customers must be made whole and regulators must step up to address the risks associated with cryptocurrencies.

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