Silvergate Capital has bowed to the seemingly inevitable and announced it is to shut down its bank arm and voluntarily liquidate all of its holdings.
“In light of recent industry and regulatory developments, Silvergate believes that an orderly wind-down of bank operations and a voluntary liquidation of the bank is the best path forward," the California-based firm said in a regulatory filing.
One of the few financial institutions that actively supported cryptocurrencies, Silvergate’s fate had been in the balance since last week when it warned it was evaluating its ability to continue trading.
Last year’s shock bankruptcy of crypto exchange partner FTX sparked a US$8bn surge of withdrawals and that effectively sealed the bank's fate.
Bitcoin was little changed on the news today, with commentators saying that Silvergate closing had been expected for some time.
Crypto exchange Coinbase Global cut its ties with Silvergate last week while Binance, another crypto exchange, said it had only had limited exposure.
US broker Wedbush said that decision likely reflects a move to limit any legal liability related to FTX’s bankruptcy for the holding company Silvergate Capital.
“Importantly, Silvergate Capital is now tasked with maximizing residual value of its assets, including the disposition of its proprietary technology and tax assets and then the company may seek to return capital to shareholders, including both preferred and common holders.
Another potential outcome could be the sale of the holding company to a third party to harvest its tax assets, said the broker.
Wedbush added that while Silvergate Capital has announced its intention to liquidate Silvergate Bank, "it is to be determined if and when Silvergate Capital itself decides to liquidate".
That might mean some value in the preferred shares it adds, but a key risk remains legal liability and the extent to which Silvergate Capital can return capital prior to potentially having to defend itself related to FTX-related legal claims.