Silvergate, a bank known for its friendliness to the cryptocurrency industry, is entering voluntary liquidation and will be winding down its operations.
Adam Cochran, founder of the venture capital firm Cinneamhain Ventures (CEHV), said Silvergate Bank's liquidation is not due to its involvement in the crypto industry, but rather was caused by certain Office of the Comptroller of the Currency (OCC) guidelines, its decision to purchase low liquidity bonds and a subsequent bank run.
"Silvergate didn't fail because of crypto risk, or because of illegal actions (that we know of)," Cochran tweeted. "It failed because it followed the OCC rules for bank partial reserves, bought low liquidity Muni Bonds and then had a bank run. This was a failure of banking, not crypto."
However, U.S. Sen. Elizabeth Warren (D-MA) pinned Silvergate's liquidation on its ties to crypto.
"As the bank of choice for crypto, Silvergate Bank's failure is disappointing, but predictable," the senator tweeted. "I warned of Silvergate's risky, if not illegal, activity—and identified severe due diligence failures. Now, customers must be made whole and regulators should step up against crypto risk."
The now-bankrupt crypto exchange FTX and its associated trading firm Alameda Research both had accounts with Silvergate, and when FTX filed for bankruptcy in November, Silvergate faced approximately $8 billion in withdrawals, CoinMarketCap reported. The bank suffered a loss of $949 million in 2022, and after it told the SEC it would not be able to file its annual report on time, several firms announced they were severing ties with the bank, including Coinbase, Paxos and Gemini. Silvergate has emphasized that as it undergoes voluntary liquidation, all of its customers will be repaid in full.
Silvergate said in a news release that liquidating the bank is "the best path forward," citing "recent industry and regulatory developments." The bank said that "full repayment of all deposits" is included in its plan.
Attorney John Deaton, founder of Crypto Law and managing partner at Deaton Law Firm, said in a tweet that Warren and SEC Chair Gary Gensler would work to "conflate" Silvergate and FTX in order to "push their anti-crypto agenda," while investor Scott Melker, host of The Wolf of All Streets podcast, called Silvergate's liquidation "exactly the ammo the government needs to try to cut the crypto industry off from the banking system."
CZ, the co-founder and CEO of the world's largest crypto exchange, Binance, said in a tweet, "Sad to see this happening. But at least, it seems they will return all deposits in full. Protect users." He added that Binance did not lose any assets to Silvergate and that Binance users' funds are safe.
Silvergate had been one of two main lenders to crypto companies, alongside New York-based Signature Bank, according to CNBC.