2024-09-19
Silvergate Bank was a California-based
financial institution known for its focus on providing banking services to
cryptocurrency-related businesses. Founded in 1988, it became one of the first
banks to serve the growing cryptocurrency sector.
Silvergate specialized in offering
deposit and payment services to companies in the cryptocurrency industry.
Traditional banks often avoided working with crypto-related businesses due to
regulatory uncertainty and perceived risk, making Silvergate a critical player
in this niche.
Silvergate’s customers including MicroStrategy,
Coinbase, Paxos, Crypto.com, Gemini, Bitstamp, Circle, and FTX.
FTX filed for bankruptcy on November
11, 2022. People flocked to withdraw money from Silvergate Bank after
the collapse of FTX. Silvergate Bank did not have enough cash to pay depositors.
In March 2023, Silvergate announced it
would wind down its operations and liquidate voluntarily. This decision came
after the bank determined that it could not continue operating sustainably
under the growing financial and regulatory pressures. The liquidation plan
aimed to return funds to depositors.
Silvergate Bank went bankrupt due to
liquidity problem. The bank faced liquidity challenges as clients began
withdrawing their funds. To cover the withdrawals, Silvergate had to sell
assets, including its portfolio of securities, at a loss, which further eroded
its financial stability.
Silvergate Capital Corporation, the
parent company of Silvergate Bank, has filed for Chapter 11 bankruptcy in the
U.S. Bankruptcy Court for the District of Delaware on September 17, 2024.
The company listed assets between $100
million and $500 million and liabilities ranging from $10 million to $50
million.
Silvergate Capital Corporation’s
reorganization plan, filed as part of its Chapter 11 bankruptcy, includes
several key components:
Debt Payments: the plan
proposes fully paying several types of debts, including administrative fees,
taxes, secured loans, and professional fees.
Cancellation of Claims: Claims related
to common stock and securities lawsuits will be completely canceled.
Preferred Stockholders: Preferred
stockholders are expected to receive partial payments based on their shares.
Intercompany Claims: Debts between
Silvergate’s internal companies will be reinstated.
Funding: The plan will
be funded through cash on hand and the sale of assets.
The bankruptcy filing follows the
shutdown of Silvergate Bank in 2023, which was heavily impacted by its ties to
the crypto industry and regulatory scrutiny. The bank’s collapse was attributed
to challenges in the banking system, rising interest rates, and the fallout
from the FTX collapse.
