• Silvergate Capital, a U.S. Federal Reserve Member Bank, has seen its depositors leave and its stock price plummet due to the lack of regulation around KYC/AML policy and unregistered security offerings in the crypto sector.
• Silvergate is one of the few entities in the regulated banking system that works with crypto firms to access USD on- and off-ramps.
• Since November, Silvergate Bank’s stock is down 56%. The CEO has assured there have been no losses or liquidations yet, but a bank run is still possible.
Trouble Brewing In Crypto-Land
Key Banking Interests
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. 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. Of course, we believe 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 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. As we wrote on November 17:
“Who else is at the center of many institutions in