YEREVAN (CoinChapter.com) – Silvergate Capital, once the crypto market’s top bank, is shutting down, according to a statement released late on March 8. The company will voluntarily liquidate “in an orderly manner and accordance with applicable regulatory processes.”
FTX Destroyed Silvergate, A Morgan Stanley Eye-Candy
Silvergate’s implosion makes it one of the few non-crypto companies to close operations amid the crypto sector downturn.
For instance, in March 2022, before the Terra and FTX implosions shook the market, Silvergate received a strong boost from the financial giant Morgan Stanley, which covered Silvergate with an overweight rating.
In detail, an overweight rating means the bank in question will likely do better than its competitors. Morgan Stanley asserted that Silvergate is not only primed for substantial gains but is also at the forefront of crypto investment, despite the associated volatility and regulatory risks.
However, the assessment did not age well. In Q4 2022, due to the bearish market conditions, the bank experienced a massive investor exodus. Silvergate allegedly spent the equivalent of a decade’s profit and fired 40% of its workers after investors scrambled to redeem $8.1 billion after the FTX collapse.
To meet its customer deposits, Silvergate began selling assets — mostly bonds and other securities, at steep losses. As a result, the bank registered a net loss of around $1 billion.
Net loss attributable to common shareholders for the quarter was $1.0 billion, or $33.16 loss per common share, compared to net income of $40.6 million, or $1.28 per diluted share, for Q3, 2022, and net income of $18.4 million, or $0.66 per diluted share, for Q4, 2021.
read the Q4 quarterly earning report.
Additionally, the bank’s stock (NASDAQ: SI) dropped from Nov 2022’s all-time high of $240 to under $5 on Mar 8, 2023.
Meanwhile, the bank’s intrinsic connection to the crypto sector will likely backfire, sending ripples throughout the market. According to the earnings report referenced above, average digital asset customer deposits were $7.3 billion during Q4 2022, compared to $12 billion a quarter before.
Impact of Silvergate Implosion on Bitcoin
The flagship crypto partially pared its year-to-date gains and slid 13% after retesting a crucial resistance on Feb 21. As a result, BTC/USD settled around a support line at $21,500.
So, how will the Silvergate implosion affect the market? Analysts at brokerage Bernstein already noted the bearish impact.
“The crypto market reacted to the negative news from Silvergate Bank, with both bitcoin and Ethereum down about 4.8% for the week,” they noted.
Conversely, after Silvergate Exchange Network (SEN) closed on Friday, Hany Rashwan, the CEO of crypto investment product firm 21.co, said the event didn’t necessarily have “a material impact” on BTC’s price.
Eric Chen, CEO and co-founder of Injective Labs, also stated that Silvergate’s bearish impact on the market would depend on many factors. The former SEN partners’ willingness to “smoothly integrate new payment partners” and “ensure uninterrupted settlement speed and volume” were among the most important on the checklist.
In addition to the Silvergate implosion, Bitcoin faced headwinds from the Fed’s hawkish policies. Thus, a bearish prediction of BTC dropping to its $20,000 support by March is valid.
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