US bank Silvergate hit with $8 billion in crypto withdrawals

A US bank has been forced to sell assets and lay off staff after it sees customers withdraw $8 billion (A$11.6 billion) worth of cryptocurrencies.

Silvergate, a bank offering cryptocurrency services, revealed that it saw the massive amount of cryptocurrency withdrawn in just three months at the end of last year.

As a result, it was forced to sell US$5.2 billion (A$7.5 billion) of assets – some of them at a loss of US$718 million (A$1.04 billion) – to cover the sudden withdrawal of funds and to continue trading.

Karen Petrou, managing partner of US research firm Federal Financial Analytics, described the bank’s experience as “unprecedented” and “unusual”.

“Because they were so dependent on crypto funding, they were vulnerable for a run. Since the cryptocurrency market has been volatile, they figured that out,” he told Bloomberg.

Silvergate is listed on the New York Stock Exchange and is regulated in the financial services sector, but its disclosure has contributed to its stock price plummeting by 90% since the end of 2021.

Its shares also fell 14% on Friday after analysts warned the bank could face even more people withdrawing their funds.

The bank held about US$11.9 billion (A$17.3 billion) in cryptocurrencies, which plummeted to US$3.8 billion (A$5.5 billion) by the fourth quarter.

Silvergate also revealed that it has cut staff by 40%, laying off around 200 people.

It comes as three US regulators warned banks that issuing or holding cryptocurrencies was “most likely inconsistent with safe and sound banking practices.”

Silvergate’s whopping $8 billion dollars ($A11.6 billion) in crypto withdrawals also followed one of the biggest exchanges FTX suffered a stunning crash in November last year.

It rocked the cryptocurrency world after the exchange, which was once valued at US$32 billion (A$46 billion), collapsed, creating a domino effect as other operators also collapsed and digital coins crashed .

Former FTX chief Sam Bankman-Fried pleaded not guilty to charges that he defrauded clients and investors, while prosecutors signaled as many as one million creditors may have lost their money.

Silvergate chief executive Alan Lane said customers were withdrawing their cryptocurrency deposits to switch to less risky options, revealing $150m ($A217m) in deposits had been withdrawn from clients facing procedures bankruptcy.

“We had clients who were owner traders, market makers who had been doing business with each other for six to eight years,” added firm president Ben Reynolds. “They just stopped doing business with each other and basically withdrew all their deposits.”

Silvergate was a small US bank until 2019, when it entered the cryptocurrency game, which saw its shares skyrocket 1500% in 2021 during the peak market.

Read related topics:Cryptocurrency

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