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Crypto-focused Silvergate Bank fires 40% of its staff and liquidates debt in an effort to stay afloat

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(Kitco News) - Silvergate Bank, a California-based bank that specializes in serving cryptocurrency companies, revealed that it has been forced to take drastic measures in order to stay in business including a large debt sale and staff layoffs.

According to a report from The Wall Street Journal, the bank was recently forced to liquidate debt that it was holding on its balance sheet to keep up with $8.1 billion in customer withdrawals during Q4 2022 and lost $718 million in the process – a sum that surpassed all of the firm's profits since 2013.

Silvergate attributed the withdrawals to a crisis of confidence in crypto. Crypto-related deposits at the firm dropped by 68% in the fourth quarter of last year. Deposits dropped to as low as $3.5 billion in Q4 before rising again to end the quarter at $3.8 billion.

The bank also said that it has more cash on hand, $4.6 billion, than its $3.8 billion in remaining deposits, and holds another $5.6 billion in debt securities like U.S. Treasurys that could be sold quickly.

Due to their recent struggles, the company was forced to dismiss around 200 employees – roughly 40% of its total personnel. It also had to scrap the planned launch of its own digital currency project, resulting in a write-off of approximately $196 million.

Silvergate called the recent moves “decisive action” that needed to be taken in order to survive this tumultuous phase in the crypto economy and said that it remains committed to crypto and has the funding to handle a “sustained period of transformation.”

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The FTX bankruptcy is one of the main sources of Silvergate’s woes as FTX and other companies controlled by its founder, Sam Bankman-Fried, accounted for about $1 billion of the bank’s deposits.

Silvergate has also fallen under increasing scrutiny in the U.S., with three U.S. Senators writing a letter to the bank in December asking for more information about its involvement in customer losses as FTX went under. The bank was instrumental in helping FTX transfer customer funds to Alameda in what appears to be a massive failure on its end in monitoring and reporting suspicious activity, according to the letter.

Following the announcement of the debt sale and staff reduction, Silvergate’s stock price (SI) fell by 47.5% and is currently trading at $11.51. This marks a decrease of 95% from its all-time high of $238.78 on November 18, 2021, near the peak in the total crypto market.

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