Last Updated on March 9, 2023 by Bitfinsider

The crypto industry’s central lender, Silvergate Capital, announced on Wednesday that it will cease operations and liquidate its bank. The stock fell more than 36 percent in after-hours trading.

Along with New York-based Signature Bank, Silvergate has been one of the two most important institutions for crypto companies. Signature has more than $114 billion in assets, while Silvergate has just over $11 billion. The defunct cryptocurrency exchange FTX was a significant Silvergate client.

“In light of recent industry and regulatory developments, Silvergate believes an orderly wind down of Bank operations and a voluntary liquidation of the Bank is the best path forward,” the company said in a statement.

According to a liquidation plan disclosed on Wednesday, all deposits will be returned in full. The company did not specify how it intends to resolve claims made against it.

Centerview Partners will provide financial advice to Silvergate, while Cravath, Swaine & Moore will provide legal counsel.

The liquidation occurs less than a week after Silvergate discontinued the Silvergate Exchange Network, or SEN, one of its primary offerings. As part of the company’s liquidation announcement, Silvergate clarified that all other deposit-related services will continue to operate. Customers will be notified of any upcoming modifications.

Silvergate announced last week that it would delay filing its annual 10-K for 2022 in order to assess the “viability” of its business. The company disclosed that the delay in submitting was partially attributable to an impending regulatory crackdown and an ongoing investigation by the Department of Justice.

Silvergate also attributed the delay to inquiries from Congress and investigations from its banking regulators, including the Federal Reserve and the California Department of Financial Protection and Innovation.

Last week, crypto companies such as Coinbase and Galaxy Digital rushed to sever ties with Silvergate after the bank warned that its future viability was uncertain.

Silvergate has struggled for several months. In addition to laying off 40 percent of its personnel in January, the company reported a net loss of nearly $1 billion in the fourth quarter due to a rush for the exits at the end of last year that caused customer deposits to plummet 68 percent to $3.8 billion. To fund the withdrawals, Silvergate had to sell debt securities worth $5,2 billion.

The company approached the Federal Home Loan Bank for additional funding in the amount of $4.3 billion. This loan attracted the notice of legislators such as Senator Elizabeth Warren, who stated that it “further introduced crypto market risk into the traditional banking system.”

Citadel Securities and BlackRock have recently acquired significant stakes in Silvergate, purchasing 5.5% and 7%, respectively.