Today digital asset bank Silvergate Capital provided a fourth-quarter business update in which it disclosed that digital asset customer deposits declined to $3.8 billion at the end of last year, down 68% compared to Q3. Despite what was effectively a run on the bank, it managed to stay liquid, although it resorted to wholesale funding markets during Q4 using debt securities as collateral. Over the past few years, the bank has had a roller coaster ride.
In Q4, it sold $5.2 billion in debt securities to meet withdrawals and lost $718 million from selling securities and derivatives in Q4 2022. However, the cash and equivalents held at the end of 2022 exceeded the total deposits from digital asset customers.
Silvergate operates the Silvergate Exchange Network (SEN), which provides a fiat currency on and offramp to blockchain firms. Its average daily volumes in Q4 were $1.3 billion, up from $1.2 billion from Q3. However, one can assume the cash flow directions may have been different.
As part of the announcement, the bank said it is laying off 200 employees representing 40% of its workforce after a hiring spree in 2022.
Silvergate’s stock fell 40% this morning. Its current price of $11.72 is almost 80% down since the start of November, before the FTX collapse. It has $150 million of deposits for bankrupt firms, of which it’s thought $93 million relates to FTX and is the subject of a Department of Justice seizure. The bank is also the subject of a class action lawsuit relating to FTX/Alameda. FTX notoriously had customers deposit funds via an Alameda Silvergate bank account, triggering queries from senators. Before the fraud charges, we explored the issues with these wire transfers.
Diem was written down but not out
Additionally, Silvergate wrote off $196 million relating to its investment in Diem technology which it acquired from the Facebook-founded stablecoin startup a year ago. It said the launch of a stablecoin solution is ‘no longer imminent’. The Diem payment consideration was mainly in stock with $50 million in cash, giving a total of $182 million. But at the time, it also predicted $30 million in costs during 2022.
However, the bank is not ready to ditch Diem entirely, as it still has staff working on the project.
“We’re mindful of the fact that there are significant headwinds to launching something in the near future,” said Silvergate CEO Alan Lane in a conference call. “So we’ll have to continue to look at the expenses we’re incurring for that hopeful (launch) outcome in the future.”
