Silvergate, a California-based crypto bank whose shares are listed on the New York Stock Exchange, is suspending dividend payout to remain highly liquid as the digital currency market tries to pull itself out of the liquidity crisis of 2022.
In a press release on January 27, Silvergate, a state-chartered bank that went public in 2019, said it would suspend dividend payout on its “5.375% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A” to preserve capital.
Focus On Liquidity
The crypto bank said its primary focus is maintaining a highly liquid balance sheet with a strong capital position. This will give it an advantage as it navigates the high volatility in crypto. The move means the crypto bank will have more capital than customers’ digital assets.
The bank’s board of directors will re-evaluate the payments of quarterly dividends depending on market conditions evolve.
There was no official comment from any of Silvergate’s executives.
The high volatility in crypto saw prices peak at around $70,000 in November 2021 before plunging to $15,300 in November 2022.
Losses were due to several macroeconomic factors and crypto-related events. The shift in monetary policy saw central banks hike interest rates to tame runaway inflation.
In return, this change saw capital flow in the other direction, away from what investors would ordinarily label as “risky”, including crypto and stocks, to safe havens like bonds and gold.
Silvergate Forced To Take Bold Steps
The collapse of several CeFi platforms, first 3AC, Voyager, and BlockFi, before FTX said it was halting withdrawals and eventually filing for Chapter 11 bankruptcy protection, broke the markets. In the aftermath, crypto assets capitulated, with Bitcoin sinking to 2022 lows.
At one time, FTX was valued at over $32 billion. It later emerged that Sam Bankman-Fried misappropriated clients’ funds through the exchange’s related trading firm, Alameda Research.
The risk to safety from investors spilled over to Silvergate, stretching the crypto bank. On January 17, Silvergate posted its financial statements with the United States Securities and Exchange Commission (SEC), saying they posted a loss of $949 million in 2022. This was a sharp reversal in fortunes considering the bank made $75.5 million in profits in 2021.
Early this month, Silvergate clients withdrew almost $8 billion of their crypto deposits. Reports indicate that roughly 66% of the bank’s clients pulled out their coins in the last three months of the year. Subsequently, the bank was forced to sell $5.2 billion of its assets to cover costs and remain liquid amid the industry’s rapid changes.
Feature image from Canva, Chart from TradingView