Shares in a crypto bank with links to disgraced ex-billionaire Sam Bankman-Fried crashed after a ‘crisis of confidence’ saw customers scramble to withdraw their funds.
California-based Silvergate Capital, which offers services including bitcoin-backed loans, said deposits plunged to £3.2billion at the end of last year, from £10billion on September 30.
It came as the rapid fall in the value of crypto-currencies caused markets to panic and high-profile bankruptcies.
‘Crisis of confidence’: Silvergate Capital, which offers services including bitcoin-backed loans, said deposits plunged to £3.2bn at the end of last year, from £10bn on September 30
‘These dynamics have sparked a crisis of confidence across the ecosystem and led many industry participants to shift to a “risk off” position across digital asset trading platforms,’ the bank said.
As a result of what it dubbed ‘economic realities’, Silvergate plans to slash 200 jobs, 40 per cent of its workforce.
Boss Alan Lane said the decisions were made to adapt to ‘rapid changes in the digital asset industry during the fourth quarter’ but it had enough cash to cover the remaining deposits.
The shares plunged 42.4 per cent in trading on Wall Street, following an 88 per cent drop last year.
Silvergate’s troubles are the latest to hit the industry after the collapse of Bankman-Fried’s crypto exchange FTX in November.
The 30-year-old tycoon was arrested in the Bahamas last month before being extradited to the US to face allegations he orchestrated what some have dubbed ‘one of the biggest financial frauds in American history’.
He faces charges that he stole billions from the exchange’s customers to offset losses at his hedge fund Alameda Research and buy lavish properties and pay out millions in political donations.
Silvergate has been ensnared as a key provider of services to Bankman-Fried’s empire. Three US senators have written to Lane asking him to clarify its role in accepting deposits for Alameda that Bankman-Fried said were supposed to go to FTX.
They wrote that Silvergate appeared to be ‘at the centre’ of improper transfers of funds. The bank said it conducted ‘extensive due diligence.’
The bankruptcy of FTX has also sparked concerns that contagion could ripple across the sector and Silvergate’s rapid decline in deposits means it could be the next firm to fall.
During the market turmoil, Silvergate rushed to sell £4.4billion in debt securities to bolster its cash reserves.
It holds around £3.9billion in cash and £4.7billion of US government debt, part of which it planned to sell in early 2023.
It scrapped a mortgage product at the end of last year due to rising interest rates and lower mortgage volumes.
Concerns about its financial health also appeared to hit others with shares in exchange Coinbase down 11 per cent.
