Silvergate Bank rode the wave of the cryptocurrency industry’s rapid growth in late 2017, but as the industry crashed in late 2022, the bank lost more than $8 billion.
Silvergate was one of the first banks to offer services to cryptocurrency companies, and as the industry exploded in popularity, the bank’s deposits from crypto companies skyrocketed. But as the industry crashed, Silvergate’s core block of business crumbled, and the bank was forced to declare bankruptcy.
The sudden evaporation of its deposit base was only one of several concerns 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. In addition, its auditor has suggested that the company may need to restate its financials.
Apart from all that, its one-time crypto strengths have been waning. The value of Bitcoin and other digital currencies has plunged in recent months, and that’s taken a toll on the company’s bottom line.
The Silvergate Exchange Network had its highest volume in the first half of 2021, with $406 billion in transfers. However, this number decreased to $230 billion by the second half of 2022.
This reveals that the institution may have peaked in 2021. And the bank’s overall asset size also reached a high point in the fourth quarter of 2021, increasing by $4.6 billion to $16 billion. Its most recent report showed it at $11.4 billion.
Despite its outsized reputation as a key player in the digital assets industry, the scale of this bank’s assets is very small – comparable to a mid-sized community bank. In California, a slightly larger bank would be Farmers and Merchants Bank of Long Beach.
Silvergate Bank is different from other Long Beach community banks in one key way: their capital. The crypto bank rapidly slid into the final quarter of 2022 to a so-called leverage ratio that revealed they only had 5.4% of capital against their assets.