For all the promises of the bright future and disruption that crypto would bring, the reality is that we seem to be hitting all the usual notes that are seen in any garden-variety blow-up. The most prominent and defining feature is the loss of confidence that follows these events and can turn into self-fulfilling prophecies.
For instance, many point to the heavy losses felt by Bear Stearns' trading arm in 2007 and 2008 as the cause of its bankruptcy. While this may be indirectly true, the catalyzing factor was that banks were unwilling to lend to or transact with Bear Stearns due to excess, counterparty risk. This loss of confidence also resulted in customers and clients pulling out their funds which accelerated the demise.
Something similar is afoot in the crypto market with Silvergate Capital
The stock added to these losses after warning that customer deposits had fallen from $11.9 billion at the end of the last quarter to $3.8 billion. Many question Silvergate's viability given its exposure to FTX. The company sees it as a 'crisis of confidence across the ecosystem.'
Silvergate is focused on raising cash to survive this downturn. The company is also laying off about 200 employees which equates to 40% of its workforce. As of the end of the year, the company had $4.6 billion in cash. It believes it has sufficient reserves to redeem any withdrawals which are better than many other crypto institutions which are unable to make good on redemptions due to the misappropriation of customer funds or the collapse in the value of many crypto securities.
Interestingly, Cathie Wood's ARK family of funds also nearly liquidated its entire position in Silvergate Capital, selling almost 400,000 shares. This is a sharp turnaround from a couple of months ago, when Wood was an aggressive buyer of crypto stocks, like Silvergate, amid the FTX collapse. However, she remains bullish on Coinbase
