“The digital asset industry has undergone a transformational shift, with significant over-leverage in the industry leading to several high-profile bankruptcies,” Silvergate said.
Silvergate Capital (SI) – Get Free Report shares plunged lower Thursday after it said the collapse of FTX lead to a rush of withdraws at the crypto lending specialist amid what it called a “crisis of confidence across the digital asset ecosystem.”
Silvergate said in a limited update to its fourth quarter earnings that deposits from digital asset customers fell $8.1 billion over the three months ending in December, compared to third quarter levels, to around $3.8 billion following the FTX Chapter 11 bankruptcy filing in early November.
The rush to withdraw lead Silvergate to sell $5.2 billion of its digital assets at a $718 million loss to their book value in order to maintain liquidity. The lender also said it will cut around 40% of its staff, taking a charge of around $4 million along the way, in order to reduce costs.
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“In response to the rapid changes in the digital asset industry during the fourth quarter, we took commensurate steps to ensure that we were maintaining cash liquidity in order to satisfy potential deposit outflows, and we currently maintain a cash position in excess of our digital asset related deposits,” said CEO Alan Lane.
Silvergate shares were marked 40% lower in pre-market trading immediately following the group’s fourth quarter update to indicate an opening bell price of $13.22 each, a move that would lop more than $277 million from its market value.
FTX, at one time the second largest crypto platform in the worlds with a market value of around $32 billion, filed for Chapter 11 bankruptcy protection in early November amid a liquidity crisis triggered by the illegal use of customer deposits to back risky trades made by the group’s wholly-owned hedge fund known as Alameda Research.
Its former CEO and founder, Sam Bankman-Fried, has been charged with eight counts of fraud and conspiracy by federal prosecutors in the Southern District of New York
The U.S. Securities and Exchange Commission has charged him with building a ‘house of cards on a foundation of deception’ from the world’s second-largest crypto exchange while defrauding investors of more than $1.8 billion in order to expand his business empire and fund a lavish lifestyle that included luxury real estate purchases.