Silvergate Capital

What did it do?

Silvergate was founded in California in 1988 as a savings and loan and became a bank in 1996 after a recapitalisation by Dennis Frank and Derek Eisele. Based in La Jolla, it began serving crypto clients in 2013. The Silvergate Exchange Network, launched in early 2018, let crypto companies move money around the clock. More than 1,600 firms were customers, including Coinbase, Circle, Gemini, Kraken and Paxos. It went public in November 2019.

Why did it shut down?

After selling its small-business lending arm in November 2018 the bank focused on crypto, and by the end of 2021 more than 90% of its deposits came from crypto firms. When FTX collapsed in November 2022, customers withdrew more than USD 8 billion and the bank sold long-term bonds at a loss; deposits fell to USD 3.8 billion by the end of 2022. On 8 March 2023 Silvergate announced a voluntary liquidation and a halt to operations. The company says all deposits were repaid at no cost to the FDIC. In 2023 it agreed to pay USD 63 million to resolve inquiries by the Federal Reserve, California's regulator and the SEC. The parent, Silvergate Capital, filed for Chapter 11 in Delaware on 18 September 2024 with a plan to distribute about USD 163 million.

The story

The most interesting thing about Silvergate is that it was a dull bank for decades. Founded in California in 1988, this small institution lived on mortgages and local lending. The direction changed after chief executive Alan Lane bought his first Bitcoin in 2013.

At a time when other banks shut the door on crypto firms, Silvergate opened it. Its payments network, launched in 2018, let companies such as Coinbase, Circle and Kraken move dollars at any hour. In November 2018 it sold its small-business loans to HomeStreet Bank and put its full weight behind crypto. By the end of 2021 crypto deposits had passed USD 14 billion, and the shares reached USD 222.13 in November 2021.

But that very success was the risk. When FTX fell in November 2022, customers pulled more than USD 8 billion and the bank sold bonds at a loss. The voluntary liquidation came on 8 March 2023. The company says it repaid all deposits at no cost to the FDIC and that the bank did not fail. The parent took the final step with Chapter 11 on 18 September 2024; ordinary shareholders were not expected to receive anything.

Lessons for founders

• If your customers are all in one sector, they run on the same day. More than 90% of Silvergate's deposits were crypto firms; one sector's collapse pulled on all its liabilities at once.
• If you back short-term money with long-term assets, you do not choose the sale price on crisis day. Work out in advance what a forced bond sale would do under a run.
• Niche expertise can be your biggest advantage and your single point of failure. When you sell an old business line, ask whether it was also your buffer.

Sources

1. Crypto powerhouse Silvergate Capital bank files for bankruptcy after 18-month wind-down (CryptoSlate, 2024-09-19)
2. Silvergate Capital Declares Bankruptcy, Finalizing Its Crypto-Driven Collapse (Finance Magnates, 2024-09-19)
3. An obscure bank found its key to success. Then FTX collapsed (American Banker (Bloomberg), 2022-12-09)
4. Silvergate: A postmortem (CryptoSlate, 2023-03)
5. Silvergate Bank (Wikipedia, 2026-11-02)

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