- Silvergate plunged 48% on Thursday after the bank said it experienced a staggering $8.1 billion in customer withdrawals.
- The bank was forced to sell assets on its balance sheet to meet the withdrawal.
- Continued cryptocurrency weakness spilled over into Coinbase on Monday, which plunged 13% as trading volume plummeted.
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Alarm bells continue to ring in the cryptocurrency market as 2023 progresses, confidence continues to weaken and sentiment shows little sign of improvement.
Confidence peaked after Silvergate Capital shares plunged 48%, while Coinbase dropped 13%.
Shares of Silvergate, the San Diego-based bank betting its future on the crypto space, said it experienced a surprising number of customer withdrawals in the fourth quarter of 2022.
Customers pulled out millions of dollars due to mistrust in cryptocurrencies
Customers withdrew $8.1 billion in bank deposits after the FTX explosion caused turmoil in the cryptocurrency market.
Silvergate said that due to the sharp increase in withdrawals, it was forced to sell billions of dollars of debt securities on its balance sheet at a huge loss of more than $700 million.
The move allowed the company to increase its liquidity, which is mission-critical in terms of boosting confidence and avoiding new bank runs.
Silvergate will lay off 40% of its employees
Given the “economic realities” it is now facing, Silvergate said it would cut 40% of its workforce, which would mean 200 employees.
Silvergate’s 48% loss sounds massive, but it is relative when you consider that the stock is down 95% since November 2021.
To put this into perspective, shares fell 91% from their all-time high on Wednesday.
In other words, the liquidation of 50% of the shares reduced the company’s overall shortfall by 4 percentage points.
Crypto confidence volatility is also weighing on Coinbase, which dropped from its all-time low on Thursday to a level just above.
Coinbase shares declined after Cowen downgraded the company’s rating to “market perform”.
This is due to concerns that retail volumes have not yet stabilized.
This is a problem for Coinbase as most of its profits go to retail accounts.
“Coinbase monthly trading volume has seen a fairly steady decline in each subsequent month since November 2021, and there remains little visibility on a stabilization or rebound in retail trading volume during 2023, given the macro backdrop and contagion risk.” Looking at FTX’s on crypto asset prices,” Cowen told analyst Stephen Glagola.
Coinbase shares are down 92% from their all-time high shortly after the April 2021 IPO.
Thursday’s crypto development reiterated to investors that even the highest quality companies in the crypto space are not immune to the continued deflation of the crypto bubble, which has wiped out more than $2.2 trillion in market value so far.
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