Bitwave POV: Silvergate Liquidation, SVB Run


Bitwave POV: Silvergate Liquidation, SVB Run
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What happened

Silvergate Bank, one of the key lending institutions for crypto firms, announced that it’s winding down operations and liquidating its bank. 

In a press release, the bank’s holding company, Silvergate Capital Corporation, said it made the decision to shut down “in light of recent industry and regulatory developments.”

Silvergate has said they will liquidate their assets “in an orderly manner and in accordance with applicable regulatory processes.”  Silvergate is a member of the Federal Reserve System and is insured by the Federal Deposit Insurance Corporation, which means that account holders are protected up to the FDIC limits of $250,000 per depositor. However, since most Silvergate depositors are businesses, many don’t have full coverage of their assets, thus a run on the bank from concerned partners ultimately triggered these events.

“Silvergate’s demise was not a crypto problem,” said Marcus Sotiriou, an analyst at digital asset broker GlobalBlock.

As Silvergate was struggling, another popular crypto startup bank, Silicon Valley Bank (SVB), came under duress and was forced to sell over $21B in assets – triggering a Twitter firestorm as its solvency was questioned. Like Silvergate, most of SVB’s clients are businesses, so the $250,000 depositor insurance generally doesn’t cover their full assets. On Thursday, several prominent venture capitalists warned their portfolio companies to pull money from SVB as quickly as possible, leading to additional concerns. 

Why This Matters

  1. Even though we’re all excited for a decentralized, bankless future, we’re not there yet – your banking relationships are important!
  2. We’re obviously still feeling the reverberations from FTX. At times, the whole industry appears skittish and bank runs seem possible at a moment’s notice. 
  3. VC funding is down about 90%, and the whole startup ecosystem is hurting. It’s hard to say if this is tied to the larger threat of recession or the high interest rates – either way, if you’re a start-up, the funding market is very different than it was a year ago.

The downfall of Silvergate and worries about SVB have caused concerns about where crypto companies will turn for banking services. Many worry that this will push crypto financial services to less regulated, off-shore jurisdictions. This could add more risk to an ecosystem that is already in a precarious position in the wake of crypto institution collapses, like FTX. 

The liquidation of Silvergate has also drawn scrutiny from lawmakers who are worried about the crypto contagion reaching the traditional financial sector.

Digital Asset Security Checklist

As we move through the latest bear market, it’s important to remember that blockchain is still a nascent industry. Organizations should take practical steps to protect their business: 

  1. Diversify your treasury holdings to limit exposure in one ecosystem. 
  2. Maintain a minimum of two banking partners. This will ensure your business is protected with a fail-safe mechanism if your primary financial institution has an issue. 
  3. Develop strong relationships and rely upon your trusted accounting and legal partners. 

Most importantly, do your own diligence. Ensure your digital asset custodians have a trustworthy track record of safety audits and regulatory compliance. 

If your organization or team is looking for additional banking partners, Bitwave has a number of existing relationships. We are happy to make an introduction to our network partners. 

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Disclaimer: The information provided in this blog post is for general informational purposes only and should not be construed as tax, accounting, or financial advice. The content is not intended to address the specific needs of any individual or organization, and readers are encouraged to consult with a qualified tax, accounting, or financial professional before making any decisions based on the information provided. The author and the publisher of this blog post disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use or application of any of the contents herein.