Crypto — Asset or Debt after Silvergate Crash!
In a recent forest fire event, Silvergate Bank lost over $8 billion in the form of deposits from its crypto customers towards the end of 2022 after its core block of business cracked down, as predicted by the bank’s regulators. The sudden explosion of most of its deposit base was only one of the numerous worries for the California-based lender.
In the recent past, Silvergate faced pressure from the U.S. banking watchdogs, who have been taking a stand that banks shouldn’t rely on crypto.
According to a CoinDesk analysis of the bank’s financial reports, other than that, Silvergate’s one-time crypto boulders were starting to drag it down in the last couple of years.
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The initial numbers reported by Silvergate revealed an institution that may have peaked in 2021, however, well before the theatrics of 2022 that broke the crypto sector. For instance, the volume on the Silvergate Exchange Network hit a high initially in 2021, with $406 billion in transfers, which slid to $230 billion towards the end of 2022.
The bank’s complete asset size also reached a high towards the fourth quarter of 2021, at $16 billion. The current recent report displayed it at $11.4 billion.
What went down?
Even the high point of Silvergate’s assets portrays the scale of a mid-range community bank, even after its outsized reputation as a core part of the digital assets industry in the U.S. banking atmosphere.
But one core difference between Silvergate and the traditional Long Beach community bank is the key measure of their capital. The crypto bank slid badly towards the end of 2022 to a leverage ratio which also unmasked that it maintained just 5.4% of capital against its overall assets.
A spokesman representing Silvergate said, “Silvergate can’t comment beyond what’s already been made publicly available.”
Silvergate also identified the number of digital-assets customers it was working with each quarter out of which, the number rose to 1,620 towards the last quarter. Nevertheless, those crypto customers’ deposits nosedived from over $12 billion in the third quarter last year to even less than $4 billion towards the end of the year.
The bank’s personal data also displayed the triggered acceleration of its novel crypto-banking business and how leaning completely into digital assets made it vulnerable in the industry.
So, now the question is, is crypto actually an asset or a sheer debt on your head after the Silvergate fiasco?
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