Silvergate bank could become major problem for crypto

Crypto companies in the United States needs banks, in fact much more than banks in the United States need crypto. If Silvergate, the California bank that so many American crypto companies did business with, were to collapse, it would create an existential problem for some of them. And a mega problem for the entire crypto industry, since few banks would then dare to lend money to crypto companies in the months after. We briefly explain the situation.

History

In 2020 and 2021, when Bitcoin rose from $4,000 to as high as $69,000 and not a week went by without some coin turning someone into a billionaire, banks couldn’t announce their partnership with crypto companies fast enough. However, this was different in 2022 as Bitcoin and other currencies fell. Some investors lost and banks don’t want to identify with losers. Especially after FTX, the large crypto platform of Sam Bankman-Fried, went bankrupt in November last year, few banks dared to touch crypto.

BREAKING: ​MicroStrategy confirms exposure with Silvergate Bank

— whalechart 🐳 (@WhaleChart) March 5, 2023

Silvergate, a bank from California, specialized in real estate for a long time. With the rising prices of houses and villas in Los Angeles and San Francisco, this was a very good business. However, a few years ago, Silvergate embarked on the path of crypto, making big deals with FTX, Sam Bankman-Fried’s platform. Due to the name recognition of FTX and the sponsorship deals with, among others, the famous NFL quarterback Tom Brady, this went very well for Silvergate for a long time.

Bank run

However, when FTX went bankrupt, many customers feared for Silvergate’s future and withdrew their funds. In January of this year, when Silvergate published 4^th quarter results, it turned out that the bank had suffered a true ‘bank run’ back in November.

Customers were afraid that their money was not safe due to the connection with FTX and removed their money en masse. Silvergate’s stock plummeted as a result.

If Silvergate really does go under, it will provide the perfect excuse for politicians and regulators to claim that crypto "systemically" threatened the TradFi system in some way.

All they need is an example.$SIN

— Coin Bureau (@coinbureau) March 5, 2023

Last week was much worse. The bank announced it was delaying the filing of its annual results and the stock fell another 50%.

The problem now is that if Silvergate were to go bankrupt, it will probably be a long time before another US bank dares to do business with US crypto companies. And banks don’t need crypto that much in the US, but crypto companies in the US cannot operate without banks.