US bank Silvergate Capital on brink of collapse amid crypto market meltdown

A US bank is on the brink of collapse and its owners are debating whether it can go on after racking up $1 billion in losses.

A US bank is on the brink of collapse as the business is in the process of deciding whether it is viable for the company to continue operating.

On Wednesday night local time, Silvergate Capital announced to the country’s corporate regulator, the Securities and Exchange Commission (SEC), that it would not be able to file its annual report to deadline while it deliberates on its ability to survive.

Off the back of the news, 24 hours later, the bank’s share price plummeted a whopping 55 per cent.

So far this year, Silvergate’s stock is down 67 per cent.

Silvergate, a traditional bank founded in 1987 and based in California, increasingly delved into the digital asset space.

The firm lent out most of its funds to crypto exchanges and as a result it was hit hard by the collapse of $32 billion (A$47.45 billion) exchange FTX.

Silvergate is reportedly the first traditional bank to be sucked into the domino effect of FTX’s bankruptcy, dubbed the ‘FTX contagion’.

Following the announcement of Silvergate’s late SEC filing, several prominent crypto platforms that used the bank’s have pulled out in another blow for the embattled company.

Silvergate has been operating for 36 years.

The company is headquartered in California.

In the last three months, Silvergate bled US$1 billion (A$1.5 billion), as its losses racked up as panic set in among crypto investors and exchanges.

Silvergate has more than $US11 billion (A$16 billion) in assets, according to Bloomberg. It also holds federally insured deposits of an unknown amount.

A number of cryptocurrency exchanges, including Coinbase Global, Crypto.com, Galaxy Digital Holdings and Paxos Trust, have all withdrawn from the bank.

“In light of recent developments and out of an abundance of caution, Coinbase is no longer accepting or initiating payments to or from Silvergate,” Coinbase wrote on Twitter.

“Coinbase will be facilitating institutional client cash transactions with our other banking partners.”

Sam Bankman-Fried, founder and CEO of FTX, has been charged with fraud of the mishandling of customer funds. Picture: Timothy A. Clary / AFP

At Coinbase all client funds continue to be safe, accessible & available.

In light of recent developments & out of an abundance of caution, Coinbase is no longer accepting or initiating payments to or from Silvergate.

— Coinbase (@coinbase) March 2, 2023

The bank’s imminent demise could have wider repercussions on the wider world of traditional banking, and could put off other banks from dabbling with digital assets.

Luckily, on the whole however experts are of the belief that most banks will weather the FTX storm and that this is an isolate incident.

Julius de Kempenaer, a market commentator, told CNN: “All in all, the crisis at Silvergate is nasty, another victim that could not handle the crypto boom.

“But the impact on the market seems limited for now.”

Ian Katz, a managing director of Capital Alpha Partners, told Bloomberg: “The best we can tell, this is not the savings and loan crisis. It looks to be pretty isolated.”

Other companies have collapsed as the flow-on effects of FTX’s implosion still rocks the market.

Another major crypto lender, Genesis, also filed for bankruptcy because a large amount of its liquidity was tied up with FTX.

Australian-based crypto exchange Digital Surge went into administration because of its exposure to FTX, but it has since been partially bought out.