Silvergate collapse, explained

We need to talk about silvergate Silvergate was a crypto Focus bank with 13 billion dollars of assets under Management just last year and now it has Collapsed what happened what does this Mean for crypto and what does this guy Have to do with it we're going to cover All this in this video before we start Don't forget to hit the like button and Subscribe to our Channel I'm Giovanni Your host and this is a coin Telegraph Report Thank you On March 9 2023 silvergate's parent Company announced it was shutting down Operations and liquidating the bank the Announcement didn't come as a surprise a Few days earlier silvergate released the Statement that raised concerns about its Financial Health as a result the Company's shares crashed by more than 50 Percent in hours Its main clients including coinbase Galaxy digital crypto.com and paxus Suspended all operations with the bank We've all seen similar meltdowns in Crypto before but never with a fully Regulated U.S Bank the consequences of This are for now unknown But why should you care you may be Asking silvergate was among the very few Crypto friendly banks in the United States it was a bridge connecting the Crypto industry with the dollar system

Purchasing crypto with dollars would be Pretty difficult without the on and off Ramp Services Banks provide so what Exactly happened to silvergate to Understand that we must take a step back And look at silvergate's background Silvergate was founded in 1988 in La Jolla California it was one of the first Regulated financial institutions to Provide banking services to crypto Companies as soon as 2013 but how Exactly does a crypto Bank work Basically when you send your dollars to A crypto exchange to buy crypto the Exchange put them in a deposit account In a crypto Bank like silvergate also Stablecoin issuers need a bank to store Their Fiat reserves so that they can Keep backing their stablecoin in a One-to-one ratio there are very few Banks offering these types of services In the United States that is why Silvergate attracted a lot of deposits Over the last few years at the end of September 2022 silvergate had about 13 Billion in deposits almost all of which Were from crypto companies among its Clients were major crypto exchanges Including the now Infamous FTX you can Probably see where this is going when FTX collapsed in November 2022 it was a Major blow for silvergate panicked Investors rushed to withdraw their funds From FTX and other exchanges in turn

Exchanges had to withdraw cash deposits From silvergate to meet customers Requests basically a good old-fashioned Bank Run now as it usually happens with Bank runs silvergate did not have enough Cash available to meet all these sudden Withdrawal requests so the bank had to Sell about 6 billion dollars worth of Its Equity portfolio at a loss as a Result silvergate lost about 1 billion Dollars in the last quarter of 2022. by The end of December the banks no Interest bearing deposits were down to 3.9 billion dollars since then things Have gone downhill pretty quickly Silvergate had to sell more of its Security portfolio in January and February suffering additional losses to Worsen the situation the bank was also Facing a probe by the U.S Department of Justice for ties to FTX and sambachman Free earlier this month the bank Suspended its Flagship product The Silvergate Exchange Network which Allowed its clients to make Fiat Transfers 24 7. that sounded like a Death sentence for the bank so what now Well the collapse of silvergate marks The very first time a Traditional Bank Goes under following a crypto market Crash that sets a poor president Especially considering the current Regulatory climate in the U.S Earlier this year U.S banking Regulators

Issued a warning to Banks dissuading Them from serving crypto customers this Event is likely to reinforce the Regulator's argument that crypto Threatens the stability of the Traditional Financial system That assessment is questionable to say The least silvergate's collapse was Mainly the result of poor risk Management and not an inherent crypto Problem as custodia Bank founder Katelyn Long pointed out if silvergate held all Of its reserves in cash it would have Survived the bank run avoiding the Losses that eventually brought it down In any case the silvergate collapse is Likely to put even more pressure on Other U.S banks to stay away from crypto That process has already started Signature Bank silvergates only Competitor in the US announced it was Reducing its exposure to crypto in a Worst case scenario crypto exchanges may Lose access to banking services in the U.S that would make it far more Difficult to buy and sell crypto with Dollars but no need to panic such Immediate and widespread legislation is Unlikely and even in this worst case Scenario crypto users will still be able To buy and trade crypto by using Peer-to-peer Services as Bitcoin Proponents Samsung Mao pointed out in a Recent tweet China has a vibrant crypto

Trading ecosystem despite the fact that The country de facto banned crypto Exchanges in 2021. after all crypto is a Global and decentralized Industry it has Resisted multiple crises and will likely Survive silvergate 2. that's it for this Week's video thanks for watching and if You enjoyed the content don't forget to Like And subscribe also let us know in The comments what you think will be the Impact of the silvergate crisis I'm Giovanni your host see you next time