The crypto-friendly bank witnessed a sharp decline in Silvergate stock price since the confidence crisis in the crypto industry following the catastrophic FTX collapse. The recent report by Silvergate Capital indicates a sudden decrease in deposits from $12 billion in the third quarter to $3.8 billion in the fourth quarter.
Job Cuts and Abandoning Projects
The eroding confidence in the crypto industry’s performance prompted Silvergate Capital to reduce its headcount by 40%. Simultaneously, the cost-cutting measures adopted by the crypto-friendly bank featured abandoning capital-intensive investments led by the Diem project. The Diem project involves a payment solution initially developed by Meta on the blockchain.
The news of waning deposits in the final quarter of 2022 triggered a 40% decline in Silvergates stock on Thursday, January 5.
The California crypto bank lamented the widespread deleveraging witnessed across the crypto ecosystem. The crypto market turmoil worsened as the FTX collapse plunged affiliates and partner businesses into a worsening operating climate.
Silvergate’s chief executive Alan Lane admitted that exposure to the market turmoil left most institutional players battling an exclusive confidence crisis. Lane observed that the FTX collapse ushered all crypto firms with exposures into bankruptcy. He admitted that $150 million in deposits were received from crypto firms that had already sought Chapter 11 protection in bankruptcy court.
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Silvergate confirmed laying off 40% of its staff, translating to 200 workers, in a January 5 statement. Lane acknowledged that the crypto bank experienced an increased headcount in early 2022. With the crypto market extinguishing accelerated growth, Silvergate must adjust and align its business operations to the economic realities in the digital asset space.
While Lane confessed uncertainty in determining the total savings, he indicated that the layoffs would cost $8 million to finalize. In his address, Lane suggested that abandoning the Dome project would translate to a $196 million write-down.
Harsh Operating Crypto Space
Lane observed that the operating environment made it challenging for Silvergate to launch the tokenized dollar. The decision mirrors the 2022 exit from mortgage warehouse lending, citing higher interest rates and declining mortgage volumes.
The chief executive regretted the declined deposits, a reason for the uncertainty in the first quarter of 2023. He portrayed the continued running of deposits likely to become Silverbate’s wild card. Nevertheless, he lamented the sudden slip in Silvergate Capital to early 2021 levels.
Silvergate Capital has recently faced multiple challenges, including the suspension of the stablecoin project prompting a lower drift in the quarter three earnings.
Elsewhere, Silvergate suffered downgraded ratings by Morgan Stanley in December, citing the possible decline in deposits. Also, the company confronts class-action proceedings alleging it facilitated the rerouting of deposits from FTX and Alameda Research.
Although likely to face more charges, Lane dismissed speculators’ tendency to convey misinformation.
Editorial credit: T. Schneider /Shutterstock.com
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