Just when we thought the consequences of the crypto crash is at its tail end, Silvergate, a crypto bank had requested to delay its annual report, citing that its “ability to continue as a going concern for the twelve months following the issuance of these financial statements.” 😱
What is Silvergate?
Silvergate is a US bank that shifted its business toward primarily serving crypto clients, namely big crypto exchanges (and traders). It offers a crypto-friendly payment network that allows users to exchange dollars for crypto easily.
It is listed on the NYSE.
To provide this function, Silvergate has to hold a large amount of fiat dollars and crypto so as to be able to match user needs.
Just like a bank, it accepts user deposits and (supposingly) invests them in safe assets like Treasuries and Fed Reserves.
Unfortunately, it got greedy and started lending against its crypto.
And with greed, the story always seems to unfold in a similar fashion;
- i) Silvergate ends up over leveraging on its lending.
- ii) Crypto crash took place and users started to withdraw en masse.
- iii) Silvergate finds itself scrambling to raise funds to payout withdrawals.
What’s new eh?
Silvergate has delayed its Annual Report. While it blamed regulation inquiries, it also stated that it is facing even more losses…to the point where “the Company is currently in the process of reevaluating its businesses and strategies in light of the business and regulatory challenges it currently faces.”
Customers are now worried about their funds and are trying to withdraw as much as they can…which made things worse, leading to a bank run.
What’s the impact?
Silvergate has suspended its crypto payment network which previously served institutions.
Many are worried that we will now see the true impact of the crypto collapse. Since Silvergate’s deposits are mostly from institutions and crypto funds, if it becomes insolvent, the impact would be felt by the mainstream financial system.
Bitcoin and Ethereum saw a massive sell off of over 5% after the news was released.
Companies like Microstrategy, Coinbase, Galaxy Digital, Circle and Tether have publicly distanced themselves from Silvergate, reporting minimal exposure.
Others like Crypto.com, Gemini, Blockchain.com have also publicly reduced ties with the banks.
Our crypto mentor, Aik Keong has this to say:
“The crypto market has started to price in the fall as many have learnt a painful lesson from the recent FTX saga.
It seems like the contagion effect is still happening almost one year after the fall of LUNA and UST, affecting major Crypto institutions that have over leveraged without proper regulations in place.
We should expect even more regulations coming and that markets will stay depressed and volatile in the coming months.”
— Aik Keong, Trainer and Mentor at CryptoKnight Asia
How to stay safe in crypto?
While the crypto scene has been suffering from the bad combination of a bear market, scams, and bank runs, technology has been improving as developers continue to build and improve. In the same timeline, we’ve seen the Ethereum merge, the rise of liquid staking on Ethereum and the advent of Bitcoin NFTs…and these developments are just scratching the surface.
Our crypto mentors continue to grow their portfolio and were rewarded with recent airdrops.
While the short term prospects for crypto may sound pessimistic, Aik Keong believes that this is also a good time to accumulate more when prices are depressed. And when the market cycle turns bullish, you’ll start reaping the results of the seeds you’ve sowed during the Crypto winter.
Crypto remains a viable investment vehicle, however investors must be proactive in keeping their capital safe. AK shares how in his upcoming webinar.