The latest financial reports of a leading global virtual assets bank, Silvergate, show that the company has been hit hard by the ongoing crash in the crypto industry. Silvergate announced a $1 billion net loss for common shareholders during the fourth quarter of last year, according to a report by the United States Securities and Exchange Commission (SEC).
Net loss attributable to common stockholders stood at $33.16 per share for the quarter. Silvergate’s Q4 report also revealed a decline in digital asset customers and fee revenue related to digital asset customers.
In the last quarter of 2022, the digital asset bank experienced a significant outflow of deposits, the report highlighted. The bank took steps to maintain cash flow, including selling debt securities and raising funds.
The company also cited a “transformational shift” in the crypto market, which led to a crisis of confidence. Users withdrew funds from trading platforms to remain in a “risk-off” position.
Almost two-thirds of customer deposits were withdrawn in Q4 2022 following the collapse of FTX, forcing the company to sell assets at a significant loss to complete customer withdrawals.
The report shows that average digital asset customer deposits fell significantly to $7.3 billion in the fourth quarter of 2022. However, compared to the third quarter of 2022, when deposits totaled nearly $12 billion.
Reason Behind Silvergate’s Loss
A California-based bank, Silvergate, was founded in 1988. It was a small American bank before entering the digital assets market in November 2019. It started providing services to famous crypto firms such as Gemini Trust, Alameda Research, FTX, and Coinbase Global.
Due to the strong growth in digital currencies in 2021, its shares have increased by more than 1,500%. As of September 2022, 90% of bank deposits came from crypto firms.
Like other cryptocurrency companies, Silvergate was also affected by the bankruptcy of crypto companies last year, which led to a significant decline in the sector.
As it held deposits for Alameda Research and FTX. When the exchange crashed in early November 2022, bank customers withdrew over $8 billion from the storage of digital assets. Silvergate was forced to sell $5.2 billion in assets at a loss of $718 million to cover the withdrawals, leading to further losses in the fourth quarter.
The company has laid off about 200 employees, or about 40% of its total workforce, as of January 5. Bank also has written off $196 million used to buy Diem’s technology from Facebook.
CEO of Silvergate, Alan Lane, CEO, said:
While we are taking decisive actions to navigate the current environment, our mission has not changed. We believe in the digital asset industry, and we remain focused on providing value-added services for our core institutional customers. To that end, we are committed to maintaining a highly liquid balance sheet with a strong capital position.
In terms of transactions, the digital asset bank made $117 billion in Q4, up 4% from the third quarter ($112.6 billion) and down 47% from the fourth quarter of 2021 ($219 billion).