- Renowned crypto trader Nic Carter argues that Silvergate could have survived last year’s bank run.
In a recent court filing, the La Jolla headquartered financial institution Silvergate confirmed that the bankruptcy process was at the final stages. The bank ceased operation early last year after the investors withdrew millions, fearing the recurrence of another FTX scandal.
Profiled as a crypto-friendly bank, the financial provider was affected by the 2022 collapse of the crypto empire. This forced the investor to withdraw over $8 billion, culminating in one of the massive withdrawals.
To meet the new customers’ demands, the bank was forced to dispose of Silvergate’s long-term securities at a low price.
Could Silvergate Survive the 2023 Bank Run?
The consequences of the dissolution of Silvergate have attracted the attention of experts to assess the possibility of reawakening the giant bank. In a Wednesday post, renowned crypto investor Nic Carter shared insights on the cause of Silvergate’s bank run.
Carter argued that despite the bank being off the radar for nearly 12 months, the bank’s chances of surviving were high. He confessed that the Biden administration forcibly caused the liquidation of the bank.
From his analysis, Carter noted that the bankrupt bank could still exist despite the regulatory pressure and crypto market uncertainties. Reviewing the recent bankruptcy filing and information from familiar sources, Carter stated that Biden’s anti-crypto move forced troubled banks to close down.
Carter noted that the White House demanded that the bank lower crypto deposits to 15% or face legal charges since Silvergate operated under the Operation Choke Point 2.0 regime.
This legislation was enacted in February last year, restricting banks from holding crypto assets. The anti-crypto move law called for a collaborative regulatory approach to prevent the bank’s involvement in crypto transactions.
How the Biden Administration Forced Silvergate to Liquidate?
Carter observed that the unprecedented bank run demonstrated the impact of different regulatory approaches on the crypto market. He noted that the Federal Deposit Insurance Corporation (FDIC) teamed up with anti-crypto legislators such as Elizabeth Warren to bring down banks supporting digital assets.
The financial regulators demanded the bankrupt bank disclose its relationship with former client FTX. In a secret meeting, a person privy to the information told Carter that the FDIC had multiple regulatory approaches to shut the bank down.
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This forced the bank to agree with the FDIC demands to cap crypto deposits to the required level. He claimed that the 15% rule was just a threat to kick Silvergate out of the market.
In response to the multiple threats, the insolvent bank abandoned plans to remain afloat but comply with FDIC requirements.
In another meeting, a person familiar with the situation confessed that the top-level management at Silvergate had held an internal meeting to discuss how to comply with FDIC requirements. During the meeting, the bank leaders voluntarily agreed to shut down operations.
Why Did Silvergate Voluntarily Liquidate?
Upon contacting the California financial regulators about the legal process to liquidate the bank, the officials confessed that the Silvergate case was the first incident to be reported. Being a special case, none of the regulators contacted by Silvergate had prior experience with how banks should be liquidated.
This implies that the bank’s decision to cease operation emanated from intense regulatory pressure but not bank solvency. Carter was told that the possibility of Silvergate surviving was high since the crypto market established a major rebound after the bank run.
Furthermore, Carter noted that the Biden anti-crypto move contributed to the 2023 bank run, the largest banking crisis since 2008. Being an active investor in digital assets, Carter is not a stranger to how banks relate to crypto assets.
Carter Blames Compliance Lapses and Regulator Pressure
He explained that virtual asset service providers (VASPs) rely on financial institutions to allow customers to make online purchases or settle payments. It implies that banks play a critical role in facilitating the buying and selling of digital assets.
From his vast expertise in crypto investment, Carter has learned that non-compliance costs companies heavily. Revisiting the Silvergate history, Carter noted that the bank was also on the wrong side of the law.
He argued that if the bank had adequate anti-money laundering measures (AML), it would have been possible to identify FTX’s suspicious transactions. Carter concluded that Silvergate was reluctant to identify FTX’s illegal activities and kept the bank on regulators watch. He also noted that the financial regulators ill-treated the bank.
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