Crypto On-Ramps in Trouble: Silvergate’s Stock Plummets 97%

• The article discusses the lack of regulation around KYC/AML policies in the crypto industry, which has caused few U.S. banks to be willing to work with crypto firms.
• It examines Silvergate Capital’s recent stock price drop and depositor flight, as well as its role in serving FTX and Alameda with USD rails.
• The CEO has attempted to reassure markets that their current loan book has not faced any losses or liquidations so far, but there is still an ongoing risk of a bank run on Silvergate deposits.

Overview

This article examines recent developments within the crypto sector that have been heating up with regards to crypto on- and off-ramps. It focuses on Federal Reserve Member Bank Silvergate Capital’s recent stock price plummet and depositor flight, which highlights the lack of regulation around know-your-customer and anti-money laundering (KYC/AML) policy that exists in the industry for offshore entities, as well as the issues with unregistered security offerings and fraud.

Silvergate’s Role In Serving Crypto Firms

Alongside Signature Bank, Silvergate is one of two key U.S. banks that works closely with the crypto sector to provide access to established USD on- and off-ramps for companies who are in the business of moving money or processing payments and transactions. Since November — after the collapse of FTX — it became apparent that Silvergate played a role in serving FTX and Alameda by giving them access to USD rails.

Risk Of A Complete Bank Run On Silvergate Deposits

Despite reassurances from Silvergate’s CEO that their current loan book has faced zero losses or liquidations so far, there is still an ongoing risk of a complete bank run on Silvergate deposits due to poor stock performance over the last two weeks which suggests otherwise. This highlights both the need for more comprehensive regulations surrounding KYC/AML policies within the industry but also better fraud detection measures across all platforms dealing with digital assets or securities offerings related to cryptocurrencies.

Conclusion

The events unfolding at Federal Reserve Member Bank Silvergate Capital demonstrate just how fragile links between fiat currencies like USD and cryptocurrencies can be when there is no unified regulatory framework in place for managing KYC/AML policies offshore entities or detecting fraudulent activities related to digital assets or securities offerings related to cryptocurrencies like Bitcoin. Going forward, further steps must be taken by governments and regulators in order ensure stability within these markets while protecting investors’ interests against risks associated with banking services related to cryptocurrency firms operating outside regulated systems.

Takeaways

• There is a general lack of regulation surrounding know-your-customer (KYC) /anti-money laundering (AML) policies in the cryptocurrency industry which makes it difficult for U.S banks like Silvergate Capital to offer banking services related to cryptocurrency firms operating outside regulated systems without exposing themselves to extreme concentration risks such as depositor flight and collapsing stock prices;

• Despite reassurances from Silvergeate’s CEO that their current loan book has faced zero losses or liquidations so far, there remains an ongoing risk of a complete bank run on their deposits due issues surrounding unregistered security offerings & fraud;

• Going forward governments & regulators must take steps towards creating unified regulatory frameworks for managing KYC/AML policies & better fraud detection measures across all platforms dealing with digital assets & securities offerings related cryptos;

• These measures will help protect investors’ interests against risks associated with banking services relating tobcryptocurrency firms operating outside regulated systems while helping ensure stability within these markets going forward