• US officials have launched a probe into Silvergate’s relationship with now-defunct cryptocurrency exchange FTX and its trading arm Alameda Research.
• Silvergate shares dropped sharply in pre-market trading following the news of the investigation.
• Silvergate suffered significant losses due to its involvement with FTX, including a $718 million loss and a drastic drop in deposits from 2021 to 2022.
US Officials Launch Probe into Silvergate’s Ties With FTX and Alameda
The US Department of Justice has launched an investigation into crypto bank Silvergate’s dealings with fallen crypto giants FTX and Alameda Research. The inquiry is looking into the bank’s hosting of accounts associated with Sam Bankman-Fried’s businesses, but no wrongdoing has been accused yet. Following the news, Silvergate shares saw a sharp decline in pre-market trading.
Silvergate Shares Plunge Amid Investigation
Silvergate shares took a nosedive following the news of the investigation, plunging by as much as 10% in pre-market trading. Notably, the company already lost 88% of its value in 2022 amid the broader crypto market downturn that saw around $2 trillion being wiped out of the market.
Focus of Investigation
The focus of the investigation is what banks and intermediaries working with Bankman-Fried’s firms knew about a years-long scheme to defraud investors and customers? Sam Bankman-Fried, founder of FTX, was charged with eight criminal charges including wire fraud and conspiracy to misuse customer funds last month; he pleaded not guilty to all charges.
FTX Collapse Hits Silvergate Hard
When FTX collapsed in November last year, it hit Silvergate hard; it had to sell $5.2 billion debt securities from its balance sheet at a significant loss to cover around $8.1 billion user withdrawals resulting in a loss of $718 million—which reportedly exceeds total profits since 2013 for the bank. Furthermore, deposits went down drastically from $11.9 billion in 2021 to just $3.8 billion at end 2022; this led many to believe that crypto exposed banks are increasingly relying on TradFi companies for support such as Federal Home Loan Banks which gave Silvergate at least $3.6 billion loans recently .
Conclusion
SilverGate shares experienced an immediate plunge following reports that US officials have started investigating their ties with FTX and Alameda Research — though nothing incriminating or wrong doing has been found yet — leading many to suggest that there is an increasing reliance between Crypto Exposed Banks and TradFI companies like FHLB for support when needed during times like these