The bankruptcy of FTX had a significant impact on the major crypto industry banker.

Silvergate Capital SI, a cryptocurrency-focused lender, sank 29% in premarket trading on Thursday after delaying its annual report to the SEC. The bank has been in the news ever since, as crypto prices have dropped and the news has spread throughout the industry. Coinbase, Galaxy Digital, and Circle have all stopped doing business with the Silvergate as well.

What is Silvergate Capital?

Silvergate Capital started out as a community bank in California in the late 1990s. A decade later, it shifted its focus to cryptocurrencies and began providing traditional financial services to crypto businesses, including exchanges. Silvergate was unavoidably a crucial component of the crypto industry as a whole because this occurred before any other banks considered cryptocurrency.

The Silvergate Exchange Network is one of Silvergate’s services. It is an instant payment platform that lets Silvergate clients send dollars to any Silvergate account at any time, even when traditional banks are closed on weekends and nights.

Despite the fact that the bank did not directly deal with cryptocurrencies, the majority of its clients did. Because withdrawals and deposits were made in fiat currencies, the bank was hard hit by the collapse of crypto exchanges and the downturn in the crypto market last year. FTX was one of the largest crypto exchanges in the industry before it filed for bankruptcy in November 2022.

Why does it matter?

Since its record high in November 2021, Silvergate Capital’s stock price has decreased by approximately 95% in just over a year. Silvergate bought assets from Meta’s Diem (formerly Libra), which was part of Meta Platform’s effort to build a futuristic payments network, in March of last year. Investors were excited about Silvergate’s potential and the possibility of it issuing a stablecoin.

After Silvergate warned on Thursday that it was delaying its annual report and evaluating its operational capacity, things quickly changed. Investors withdrew deposits following the FTX bankruptcy, as the exchange was once one of Silvergate’s biggest customers, leading to the bank’s fourth-quarter loss of $1 billion earlier this year.

A group of senators from the United States wrote a letter in January challenging the bank’s involvement in FTX’s business practices. The bank was also criticized in the letter for getting a loan from the Federal Home Loan Bank of San Francisco (FHLB), which could “further introduce crypto market risk into the traditional banking system.”

Additionally, the bank is the subject of numerous lawsuits alleging that it failed to inform investors of the platform’s lack of safeguards against money laundering.

Some investors are now concerned that Silvergate may also file for bankruptcy protection in light of all of these occurrences and the financial losses that the bank has sustained since the collapse of FTX.

The Federal Deposit Insurance Corporation (FDIC) may protect depositors in the event of the bank’s failure. It’s not clear whether any other bank would like to acquire Silvergate.

By CryptoMarketsLeo

CryptoMarketsLeo Admin

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