US bank suffers losses and job cuts after $11.6 billion in crypto withdrawals

The cryptocurrency crisis has hit yet another operator, with it having to scramble to sell off assets to stay afloat as well as laying off hundreds of staff.

A US bank has been forced to sell off assets as a whopping $A11.6 billion in crypto was withdrawn from its accounts. Picture: Ozan Kose/AFP

A US bank has been forced to sell off assets and cut staff after it saw $US8 billion ($A11.6 billion) worth of cryptocurrency withdrawn by customers.

Silvergate, a bank which offers cryptocurrency services, revealed it had seen the huge amount of cryptocurrency taken out in just three months at the end of last year.

As a result, it was forced to sell $US5.2 billion ($A7.5 billion) in assets – including some at a loss of $US718 million ($A1.04 billion) – to cover the sudden withdrawal of funds and to continue trading.

US research firm Federal Financial Analytics managing partner Karen Petrou described the bank’s experience as “unprecedented” and “unusual”.

“Because they were so dependent on crypto funding, they were vulnerable for a run. Given the crypto market has been unstable, they got it,” she told Bloomberg.

Silvergate is listed on the New York Stock Exchange and is regulated within the financial services sector but its revelation has contributed to its share price plummeting by 90 per cent since the end of 2021.

The cryptocurrency sector has taken a huge hit. Picture: The Daily Telegraph

Its shares also dropped by 14 per cent on Friday after analysts warned that the bank could face even more people withdrawing their funds.

The bank had been holding around $US11.9 billion ($A17.3 billion) in cryptocurrency which plunged to $US3.8 billion ($A5.5 billion) by the fourth quarter.

Silvergate also revealed it had reduced staff by 40 per cent – letting go of around 200 people.

It comes as three US regulators have warned banks that issuing or holding crypto was “highly likely to be inconsistent with safe and sound banking practices”.

Silvergate’s whopping $US8 billion ($A11.6 billion) in crypto withdrawals also followed one of the biggest exchanges FTX suffered a stunning collapse in November last year.

It rocked the cryptocurrency world after the exchange, which was once valued at $US32 billion ($A46 billion), went under – creating a domino effect with other operators also collapsing and digital coins plummeting in value.

Former FTX boss Sam Bankman-Fried has pleaded not guilty to charges that he defrauded customers and investors, while prosecutors flagged that as many as one million creditors may have lost their money.

Former FTX chief executive Sam Bankman-Fried leaves Manhattan federal court, New York, January 3, 2023. Picture: Ed Jones/AFP

Silvergate chief executive officer Alan Lane said clients had pulled their crypto deposits to move to less risky options, revealing that $US150 million ($A217 million) in deposits had been withdrawn by customers facing bankruptcy proceedings.

“We had clients that were proprietary traders, market makers that had been doing business with each other for sometimes six to eight years,” added the firm’s president, Ben Reynolds. “They just stopped doing business with each other and essentially pulled out all their deposits.”

Silvergate was a small US bank until 2019 when it entered the cryptocurrency game, which saw its shares skyrocket by 1500 per cent in 2021 during the market’s peak.