Silvergate’s Crypto Deposits Fell 68% as Securities Sales Produced a $718 Million Loss

Silvergate Capital disclosed on January 5, 2023 that deposits from digital-asset customers had fallen to $3.8 billion at December 31, 2022 from $11.9 billion at September 30, forcing the crypto-focused bank to sell securities at a large loss and cut its workforce.

The $8.1 billion quarter-end reduction equals 68.1%, a Coinburn calculation from the two company-reported balances. Silvergate said the figures were preliminary and unaudited, subject to normal closing procedures and the year-end audit. They measured customer deposits at two quarter-end snapshots, not withdrawals on January 5 and not assets held on any exchange.

Liquidity came at a cost

Silvergate reported selling $5.2 billion of debt securities during the fourth quarter for cash, realizing a $718 million loss on securities and related derivatives. The sales included available-for-sale assets and securities previously classified as held to maturity. At year-end, the company said it held approximately $4.6 billion in cash and cash equivalents, more than its digital-asset customer deposits, plus $5.6 billion of debt securities at fair value. Those remaining securities carried about $300 million of unrealized losses.

The liquidity position came with additional funding obligations. Silvergate reported $2.4 billion of short-term brokered certificates of deposit and $4.3 billion of short-term Federal Home Loan Bank advances at December 31. It anticipated selling more securities in early 2023 to reduce wholesale borrowings, an action expected to trigger another fourth-quarter impairment charge. That was management’s expectation on January 5, not a completed sale.

The bank also announced a reduction of about 200 employees, or 40% of its workforce. A Form 8-K says affected workers were notified on January 4 and estimated most of the roughly $8 million in associated costs would be incurred in the first quarter of 2023.

A banking channel exposed to crypto’s confidence shock

Silvergate attributed the outflow to a crisis of confidence after leverage and high-profile bankruptcies shook the digital-asset industry. On its January 5 call, management pointed to failures stretching from Terra and Three Arrows Capital to Celsius, Voyager, BlockFi and FTX. That account was the company’s explanation; the filing did not independently allocate the $8.1 billion decline among customers or prove how much was caused by any single failure.

The institutional significance was larger than one bank’s earnings. Silvergate had specialized in serving exchanges, market makers and other digital-asset businesses through the Silvergate Exchange Network, a 24-hour dollar-transfer system. Even as deposits contracted, the company reported average daily SEN volume of $1.3 billion in the fourth quarter, against $1.2 billion in the third. Those are Silvergate’s platform measurements, not market-wide crypto trading volume.

The deposit shock therefore exposed a structural mismatch. Crypto markets and institutional transfers operated continuously, while the bank invested deposits in securities whose market values had fallen as interest rates rose. When customers wanted cash back rapidly, selling those securities converted unrealized markdowns into realized losses. That interpretation follows the disclosed mechanics; it is not a finding that Silvergate was insolvent on January 5.

Strategy narrowed with the balance sheet

Silvergate also took a $196 million impairment charge on technology acquired from the Diem Group, saying launch of its planned blockchain-based payment system was no longer imminent. The bank was simultaneously shrinking staff, reassessing products and preserving liquidity while maintaining that customer deposits remained accessible.

What was knowable on January 5 was severe but bounded: a 68.1% quarter-end deposit contraction, costly asset sales, heavy wholesale funding and a major retrenchment. The announcement did not establish that the bank would close, that depositors would suffer losses or that its payment network would stop operating.

Later context

A May 2023 analysis by the Federal Reserve Bank of St. Louis estimated that most of Silvergate’s run may have occurred over roughly seven days in November 2022. That retrospective estimate relied on assumptions about average deposits and FTX’s share of balances; it was not available on January 5 and does not replace the preliminary event-day disclosure.