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Have We Experienced the First Crypto-Bail Out?

A Look At Silvergate Bank's Death & Resurrection

Crypto-business bank Silvergate Bank accomplished the impossible at the end of 2022. They managed to withstand a $8 Billion drop in deposits –as a result of the FTX collapse and not DIE. Deposits from Silvergate’s crypto firms clients fell to $3.8 billion in December from $11.9 billion in September 2022.

Silvergate Bank is a large California based bank that has been instrumental in providing financial services for cryptocurrency companies for several years. They are also publicly traded and are a member of the Federal Reserve System.

Silvergate Bank experienced the equivalent of a massive heart attack, a bank run and miraculously survived. An $8 Billion liquidation would take out even the most well capitalized companies. That's roughly a 70% drop in deposits, which is even more severe than that bank runs seen in the Great Depression. Between 1930-1933 the banks that closed experienced an average deposit decline around 38%.

I have been wondering how this was possible in the current economic environment and until I read the article here. It seems that Silvergate Bank liquidated their debt on their balance sheet and received a much needed defibrillator shock – an injection of $4 billion of capital from the quasi-governmental agency, the Federal Home Loan Bank System.

This appears to mark the very first crypto-bailout that I am aware of. First, it is indicative of this existing bear market with a potentially extended timeframe.This also suggests a deeper connection between traditional finance and the cryptocurrency world, than originally thought. Only time will tell if these connections will be expanded.

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