SILVERGATE

BY

MADHAVA NURMAWAN

The date is March 3rd, 2023 Reports have surfaced of mutated animals as a result of the Chernobyl incident, the case of a disgraced lawyer who murdered his family comes to light, and a Ukrainian mayor has gone off the radar. Despite all this, I believe there is something more monumental that could affect us all: The Silvergate Meltdown.

35 years ago, a 29 year old Dennis Frank and a 20 year old Derek Eisele founded Silvergate Capital. A Californian bank that didn’t find its big break until crypto currencies came into the picture. Crypto currency is a form of digital currency that isn’t tied to a centralised system. Perhaps inspired by the likes of Coinbase, they ventured into the crypto market in 2013 and worked under ideologies like wanting to “empower people” and “exceed expectations”.

Silvergate capital pivoted towards the crypto market in 2013, and excluding the past year, it had been paying off Their major innovation was SEN, the Silvergate Exchange Network, a platform that would make crypto transactions more efficient This was a platform that operated 24/7 and collaborated with over 250 other cryptocurrency banks across the globe, consisting of the likes of Coinbase, Gemini and Bitstamp. A year later on November 7, 2019, they had gone public and issued shares at $150 when they first joined NYSE (The New York Stock Exchange); Over 3 years later their valuation fell by 80%

In January 2022, Silvergate had acquired Diem Coin for $200 million. Diem coin, formerly known as Libra, was announced on June 18th, 2019, as a stable coin. A stable coin is a cryptocurrency which has a value fixed to another asset Diem would be added to their SEN While this was happening, they had also initiated SEN Leverage which would loan USD backed by Bitcoin There were many sceptics regarding the volatility of Bitcoin, but this was where SEN came in. Silvergate had accounted for this, and had already created their own platform to quickly sell their Bitcoin in case of any emergency.

Then issues did arise But these were unaccounted for, they were from the inside FTX would melt down as it was uncovered that former CEO of FTX Sam Bankman-Fried had pulled what was deemed the largest rug pull of all time, recent reports of bribery with Chinese political figures didn’t help his case either FTX ended up running a 24/7 customer support program however, recent accusations came out revealing that Silvergate was aware of FTX’s actions when the program had started, just weeks before FTX was exposed.

Silvergate faced a class-action lawsuit on the 14th of December and went under investigation At this point, it was revealed that they had cut ties with 40% of their workforce, and that they had to take out a loan of $4.3 billion from the Federal Home Loan Bank. Right while this fiasco was happening, BlackRock (the world’s largest asset manager) would increase their stake in Silvergate from 5 9% to 7 2% and ‘buy the dip’

On the 8th of March Silvergate announced the shutdown of SEN and this had marked the point where everything finally came to an end. On this same day, Silvergate had ended up liquidating (the process of ending a business and selling off any remaining assets) and their hold on crypto exchange had run its course From market leader to shut down, this was the crash and burn of Silvergate.

Bibliography

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Hollerith, D (2023, March 9) Silvergate capital will liquidate after crypto collapse wipes out bank Yahoo! Finance. Retrieved March 10, 2023, from https://finance.yahoo.com/news/silvergatecapital-will-liquidate-after-crypto-collapse-wipes-out-bank220356639.html#:~:text=The%20stock%20opened%20at%20%24150,billion%20through%20its%20f ourth%20quarter

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Goldstein, M. (2023, March 28). Sam Bankman-fried is charged with foreign bribery. The New York Times Retrieved March 30, 2023, from https://www nytimes com/2023/03/28/business/ftxsam-bankman-fried-bribery.html

Asmakov, A (2022, December 16). Crypto Bank Silvergate hit with class action lawsuit over FTX, Alameda dealings. Decrypt Retrieved March 30, 2023, from https://decrypt.co/117405/cryptobank-silvergate-hit-class-actionlawsuit-ftx-alameda-dealings

Macheel, T. (2023, January 31). Silvergate capital shares jump after Blackrock reports increased stake in the Crypto Bank CNBC. Retrieved March 30, 2023, from https://www cnbc com/2023/01/31 /silvergate-capital-shares-jumpafter-blackrock-reportsincreased-stake-in-the-cryptobank html

Capital, S. (2023, March 8). Silvergate Capital Corporation announces intent to wind down operations and voluntarily liquidate Silvergate Bank. Silvergate. Retrieved March 30, 2023, from https://ir silvergate com/news/ne ws-details/2023/SilvergateCapital-Corporation-AnnouncesIntent-to-Wind-DownOperations-and-VoluntarilyLiquidate-SilvergateBank/default.aspx#:~:text=In%2 0addition%2C%20Silvergate%20 Bank%20made,through%20the% 20wind%20down%20process