Alan Lane, the CEO of Silvergate, the parent company of Silvergate Bank, which provides financial solutions to businesses in fintech and cryptocurrency, said in a statement the company has taken steps in response to lower deposit levels and shaken industry confidence in the fourth quarter of 2022. The company is aiming to remain liquid by reducing the company's headcount and selling debt securities.
“In response to the rapid changes in the digital asset industry during the fourth quarter, we took commensurate steps to ensure that we were maintaining cash liquidity in order to satisfy potential deposit outflows, and we currently maintain a cash position in excess of our digital asset related deposits,” Lane said, according to a press release.
According to Lane, total deposits for Silvergate digital asset customers declined from $11.9 billion in Q3 2022 to $3.8 billion in Q4, which he attributed to "a crisis of confidence" in the crypto sector sparked by "significant over-leverage in the industry leading to several high-profile bankruptcies," which has prompted many industry participants to take a “risk off” stance, according to the statement.
In order to ensure the company had enough cash on hand to satisfy customer withdrawals, Silvergate sold debt securities. Additionally, due to the "the economic realities" facing the crypto industry and in order to remain "resilient" during what Lane called a "transformational shift" in the sector, Silvergate is laying off 200 employees, or approximately 40% of its workforce.
The release notes that the metrics and numbers it includes are preliminary and could change after conducting its normal year-end audit for 2022.
The run on Silvergate was due, at least in part, to the collapse of FTX in November, according to the Wall Street Journal (WSJ). In addition to shaking investors' and customers' confidence in the crypto industry, FTX and other companies previously controlled by Sam Bankman-Fried, the former CEO of FTX, accounted for approximately $1 billion of Silvergate's deposits. Silvergate's stock has dropped 84% over the last three months, but the bank remains confident it has sufficient funding to navigate this turbulent period.
Silvergate's relationship with FTX, Bankman-Fried and Bankman-Fried's Alameda Research has been scrutinized after it came to light that Bankman-Fried was misusing customer funds to hedge risky bets, the WSJ reported. Silvergate leadership has claimed ignorance of the misuse of FTX customer funds. Lane wrote in a letter to lawmakers, "At Silvergate, we understand and share the concerns being widely expressed that FTX apparently was directing its customers to wire money to Alameda’s accounts."
Some critics are questioning Silvergate's methods for remaining liquid. Grit Capital CEO Genevieve Roch-Decter tweeted: "Crypto bank Silvergate is facing a bank run after working closely with FTX But US taxpayers just footed the bill for a $4.3 billion loan to help the bank stay afloat Is this really something the government should be doing? ... Of course, all U.S. banks have access to similar funding, but you’ve got to scrutinize the hypocrisy of Silvergate bragging about its 'innovate' model and shunning traditional finance, just before taking out government subsidies from the very system the bank is supposedly disrupting."
