Silvergate Bank is a financial institution that primarily serves cryptocurrency companies. It provides cryptocurrency exchanges and investors with bank accounts and operates a network that connects these investors to exchanges. The bank is well-known for having a high percentage of cryptocurrency-related deposits, which account for roughly 90% of total deposits.. Silvergate Bank has contributed significantly to the growth of the cryptocurrency industry by providing a dependable banking solution for companies in the space.
What is going on?
As the crypto market continues to face challenges, Silvergate Bank has found itself at the center of the storm. The collapse of FTX triggered a rush of withdrawals totaling $8.1 billion, leading Silvergate to sell assets at a loss in order to cover these withdrawals. The resulting $718 million loss far exceeds the bank's profits since at least 2013
In response to the crisis, Silvergate has made significant changes to its operations. The bank has laid off 40% of its staff, or around 200 employees, and plans to scale back its businesses. It has also abandoned its plans to launch its own digital currency, writing off the $196 million it invested in technology developed by Facebook for its failed crypto-based payments network.
As a bank that primarily serves the crypto industry, Silvergate operates a network linking investors to crypto exchanges. FTX and other companies controlled by its founder, Sam Bankman-Fried, made up around $1 billion of the bank's deposits. The collapse of these companies in November sent shockwaves through the crypto market, leading to a sharp drop in Silvergate's stock.
Despite the steep decline in deposits, Silvergate's unique business model of providing bank accounts to crypto exchanges and investors, as well as its high percentage of crypto-related deposits (90%), allowed it to weather the storm. Additionally, Silvergate remains committed to the crypto industry and has the resources to handle a sustained downturn, with more cash on hand and debt securities that can be quickly sold at the end of Q4. Furthermore, the bank's network saw an increase in daily average volume during this time.
In the past three months, Silvergate's stock has dropped more than 70% and is heavily shorted. While the trade has been profitable for shorts, with profits of over $400 million in the past year, the stock saw a rally of 27% on Wednesday, its best percentage gain since 2020.
How can this affect my crypto assets?
Silvergate is a major player in the industry and its failure could cause a ripple effect among other companies in the crypto space.
If Silvergate were to go bankrupt, it could potentially disrupt the operations of the companies it serves and lead to a loss of confidence in the cryptocurrency market more broadly. It could also lead to financial losses for companies that rely on Silvergate's services and potentially create uncertainty among investors.
Grayscale ( previous article that we discussed about ) issue could also potentially impact the market as well. They own 600.000 BTC.
The moral of the story is :
If you think that the current state of the cryptocurrency market represents a good opportunity for investment and you have confidence in the future potential of cryptocurrencies, then investing in Silvergate could be a smart move.
In fact, if the market reaches a market cap of $10T in the coming years, it could potentially lead to crazy returns of 500K USD/BTC, given its current price of around $17,000.
However, if you are concerned about the economy or believe that the price of bitcoin will decline below $16,000, it may be best to stay away from the crypto market.
It is important to be careful with the amount you invest and to be aware that the value of your investments could temporarily go down, but in the long run (2024-2027), the cryptocurrency market has the potential to generate significant returns like no other market out there. It's like buying Amazon in 2000
Few hours later it droped 43%