Latest Crypto Failure Touches 'Real' Bank System

Silvergate Bank, called a 'cornerstone' of the industry, is shutting down
By John Johnson,  Newser Staff
Posted Mar 9, 2023 9:45 AM CST
Latest Crypto Failure Is Especially Troubling
An advertisement for bitcoin is displayed on a building in Hong Kong.   (AP Photo/Kin Cheung, File)

It's a familiar story of late: Bitcoin and other cryptocurrencies were sinking in value on Thursday after a financial entity's high-profile collapse. In this case, the entity is Silvergate Bank. But this one is different from the collapse late last year of crypto exchange FTX, as Elizabeth Lopatto explains at the Verge. The headline sums it up: "Uh, oh! The crypto collapse has reached the real financial system." Details:

  • Silvergate didn't start with a focus on crypto—it began with real estate—but it got heavily involved with bitcoin in 2014, writes Lopatto. Through its Silvergate Exchange Network, it allowed crypto exchanges such as Coinbase, Gemini, and Kraken to easily move money around.

  • On Wednesday, following a run on deposits by worried customers, Silvergate announced it was winding down and would return all remaining deposits, per the Wall Street Journal. The newspaper has a similar take to Lopatto's, calling this "one of the crypto meltdown's first big casualties in the mainstream financial system."
  • The demise of Silvergate is "concerning for the (crypto) industry," per CNBC. "Businesses still have Signature Bank, whose Signet platform is comparable to Silvergate's SEN, but the company has already said it plans to limit its crypto exposure in light of recent events." That could mean that crypto companies may have to turn to "less regulated institutions" to do business, writes Mitchell Clark at the Verge. "In other words, if there isn't a bank playing by the rules willing to do business with them, they may have to find a bank that doesn't." Silvergate had been a "cornerstone" of the industry, he notes.
  • Bitcoin dipped about 2% to under $21,600 on the news, and ethereum also fell about 2%, notes CNBC. However, the relatively modest losses suggest investors saw this coming, especially after Silvergate shut down SEN last week.
(Read more cryptocurrency stories.)

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