Facing what CEO Alan Lane described as a "crisis of confidence" in the digital-asset industry, Silvergate Capital Corp. announced Thursday that it is laying off about 200 employees and halting plans to develop a blockchain payments network.
The turmoil in the digital-asset space has triggered a steep decline in Silvergate's deposits, which plunged 68% during the fourth quarter. Silvergate said it held $3.8 billion of deposits on Dec. 31, down from $11.9 billion three months earlier, but up from a low of $3.5 billion.
Despite the improvement, Lane stopped short of saying the La Jolla, California-based Silvergate couldn't fall further.
"This is a really volatile industry," Lane said Thursday on a conference call with analysts. "It's impossible to predict. That's why we structured our business to be able to withstand a 70% drawdown and still be here to talk to you."
For the time being, Lane said Silvergate's strategy would be geared toward ensuring "a highly liquid balance sheet with minimum credit exposure and a strong capital position."
The bank said its Silvergate Exchange Network cryptocurrency trading platform has continued to operate with average daily volume topping $1.3 billion in the fourth quarter, up from $1.2 billion in the quarter ending Sept. 30.
To boost liquidity, Silvergate sold $5.2 billion of debt securities during the fourth quarter — including some that had been marked as held-to-maturity — incurring a $718 million loss. The company plans to sell more securities in the first quarter of 2023 to pay down wholesale borrowings, according to Chief Financial Officer Antonio Martino.
Silvergate has $5.6 billion remaining in its securities portfolio, all marked available for sale, Martino said. Silvergate holds cash and cash equivalents totaling $4.6 billion — well in excess of its deposit liabilities, Martino added.
The decision to nix work on the blockchain payments network comes a little less than a year after Silvergate
"Given the significant changes in the digital-asset industry landscape, this charge reflects the company's belief that the launch of a blockchain-based payment solution is no longer imminent," Silvergate said in a press release.
Employees affected by the layoffs were notified Wednesday and will be provided with severance and job placement assistance, according to Lane. The layoffs will result in an $8 million first-quarter charge.
The digital-asset industry's problems predated the collapse of the
"What we saw was a significant over-leveraging that began to unwind in the first half of the year," Lane said. "This was a much more widespread deleveraging of the ecosystem that obviously culminated with the collapse of FTX."
Silvergate President Ben Nelson said none of the clients who have removed digital assets told him they were departing the space permanently, but none would say when they plan to return.
"We had clients that were proprietary traders, market makers, that had been doing business with each other for six to eight years that stopped doing business with each other," Nelson said. "We had some clients, these are crypto-native firms, that moved almost completely into U.S. treasuries. That was sort of the dynamic that happened in the fourth quarter."
