How Silvergate Bank's Crypto Bet Ended in Voluntary Liquidation

The crypto industry's most important banking partner has thrown in the towel. In an announcement issued March 8, 2023, Silvergate Capital Corporation said it intended to wind down operations and voluntarily liquidate Silvergate Bank. The plan reportedly includes full repayment of all deposits, but the collapse still stands as a stark marker of how brutal 2022 was for centralized crypto finance, compounded by an increasingly aggressive US regulatory posture.

The final act played out over roughly a week. It began when Silvergate disclosed that it would file its annual report to the SEC late, a filing that included language about the company "evaluating the impact that these subsequent events have on its ability to continue as a going concern." The next day, Coinbase announced it was cutting Silvergate as a banking partner, and shortly after, the bank's own real-time settlement rail, the Silvergate Exchange Network (SEN), was suspended. By the time of the wind-down announcement, Silvergate stock (SI) had fallen to under $4 a share — a far cry from its all-time high of $219 in November 2021, reached at the peak of the last bull market.

Founded in the late 1980s, Silvergate pivoted toward crypto in 2013 and became the preferred banking rail for the industry, partnering with exchanges including FTX and Coinbase and building SEN to enable around-the-clock institutional transfers.

Much of the bank's undoing traces back to its close relationship with FTX and Alameda Research. Silvergate had stated that it lost less than 10% of deposits following the collapse of Sam Bankman-Fried's exchange, but confidence in the bank eroded steadily afterward. Messari published a supportive assessment of Silvergate's position in a broader report that also drew criticism for its treatment of DeFi protocols, while other observers had already warned that FTX-related contagion would spread to the bank.

Those warnings were validated in January. Silvergate reported a $1 billion net loss for Q4 2022 and disclosed a deposit decline from $12 billion to $7.3 billion. Meeting withdrawal demand had required liquidating $5.2 billion in assets at a $718 million loss. The company also cut 40% of its workforce and wrote off $200 million tied to its earlier investment in Meta's abandoned Diem stablecoin project.

Beyond the balance sheet, Silvergate faced mounting political scrutiny: US senators pressed the bank over what they characterized as evasive answers regarding its FTX due diligence, following reports that FTX had routed customer deposits through an Alameda-held Silvergate account. Faced with deteriorating financials and intensifying regulatory pressure, the bank apparently chose to wind down voluntarily rather than risk the fate of its former client.

The broader picture is one of an industry still absorbing the consequences of 2021's excesses. Nearly every major player from the last bull cycle has since exited or collapsed, and US regulators show no sign of stopping at a single target. Senator Elizabeth Warren has been explicit about her intent to sever ties between traditional banks and crypto firms, prompting speculation over who might be next. Binance in particular remains under scrutiny and has been reluctant to disclose more than required. Meanwhile, larger banks are growing cautious even with surviving crypto firms — JP Morgan was reported to be cutting ties with Gemini, though not with Coinbase.

Silvergate's collapse illustrates how quickly trust-based CeFi relationships can unravel once real money is at stake. Even so, the broader crypto market has held relatively steady through months of bad news, with continued expressions of confidence about its medium and long-term prospects. As centralized institutions face repeated regulatory pressure, the episode may accelerate migration toward decentralized alternatives less exposed to the same enforcement risk — part of what could be described as a natural, if painful, market correction.