Silvergate Bank Plummets as Crypto On- and Off-Ramp Turmoil Grows

• Silvergate Capital, a U.S. bank, is dealing with depositors fleeing and its stock price plummeting due to issues with regulation around KYC/AML policy in the crypto industry.
• Silvergate is one of the few entities in the regulated U.S. banking system that has been willing to work with crypto firms to access established USD on- and off-ramps.
• Since November, Silvergate’s stock has dropped 56%, as it played a role in serving FTX and Alameda by giving them access to USD rails.

Trouble Brewing In Crypto-Land

Developments around crypto on- and off-ramps have been heating up, as Federal Reserve Member Bank Silvergate Capital watched its depositors flee and its stock price plummet.

Silvergate’s Role

Along with Signature Bank, Silvergate is the other key U.S. bank that works closely with the crypto sector. The reason for the extreme concentration of banking interests that are willing to deal in the crypto sector is the general lack of regulation around know-your-customer and anti-money laundering (KYC/AML) policy that exists in the industry for offshore entities, as well as the issues with the broader industry being rife with unregistered security offerings and plenty of fraud.

Crypto Access Challenges

Of course, there is a clear distinction between bitcoin and the broad term colloquially referred to as “crypto”, but the lines remain blurred for many regulators and government agencies. Thus, there have historically been very few entities in the regulated U.S. banking system that have been willing to work with crypto firms to access established USD on- and off-ramps, which presents a unique challenge to companies who are in the business of moving money and/or processing payments and transactions.

Silvergate’s Stock Performance

In regards to Silvergate, we have been monitoring the situation closely since November — after the collapse of FTX — as it became apparent that Silvergate played a role in serving FTX and Alameda by giving them access to USD rails.

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Conclusion

As we wrote on November 17th: “Who else is at center of many institutions in market? Silvergate Bank is one of those… Yet ongoing risk is complete bank run on silver gate deposits.. Although CEO’s comments sound reassuring ,stock performance over last two weeks tell much different story”.