One of the crypto sector's core banks, Silvergate Capital Corp., is being hollowed out in a classic customer retreat familiar to students of bank-run history.
The latest and most severe flight of customers from the La Jolla, California-based institution was accelerated this week by the bank’s own disclosures , including an admission that its health could be threatened by "investigations from our banking regulators," according to a March 1 document filed with the U.S. Securities and Exchange Commission. With that disclosure and Silvergate's open questioning of "the viability of the company's digital asset focused business," major customers such as Coinbase, Paxos, Circle Internet Financial and Galaxy Digital moved to sever ties .
The bank’s stock price fell more than 50% on Thursday , and is down about 95% over the past year.
Recent hard times for crypto firms have definitely been shared by their favorite banks, but the banking regulators have also been targeting those lenders with warnings about leaning too heavily into crypto, arguing that the banks' stability could suffer from exposure to a volatile market. Silvergate was basically what they were talking about, as illustrated by the sudden flight of its top crypto customers.
The company had become virtually synonymous with crypto banking, and the opening page of its website still touts the relationships it built with the industry after seeing "digital currency's potential" in the early years. Part of that relationship may have become toxic for Silvergate as it was reportedly linked to investigations of FTX's fraudulent activity.
U.S. banking regulators, including the Federal Reserve and the Federal Deposit Insurance Corp., have been campaigning to erect a barrier between the banking system they oversee and the crypto industry they've labeled as a leading hazard for the traditional financial sector. The agencies' policy statements carefully laid out a case against banks that concentrate on digital assets and the companies that issue and trade them. And in a new statement just last week, they again warned the banks that their deposits could drain quickly away as "customers react to crypto-asset-sector-related market events, media reports, and uncertainty."