The Importance of Silvergate in the Crypto Banking Landscape

It has become increasingly evident that banks focusing on cryptocurrency, such as Silvergate and Signature, were shuttered due to political actions during the banking crisis of 2023. Nic Carter argues that the method of their closure raises concerns for anyone concerned about equitable access to financial services.

From the top left: Senator Elizabeth Warren; Silvergate HQ; CoinDesk coverage of Signature's forced sale; Custodia founder Caitlin Long; Signature board member Barney Frank; and SEC Chair Gary Gensler.

Recently, I wrote an article revisiting the final days of Silvergate, claiming it was effectively dismantled by federal regulators under the Biden administration.

While many believe these banks were the architects of their own downfall, I propose a different perspective: that these institutions were systematically targeted during the turbulent financial landscape created by the 2023 banking crisis, forming part of a broader agenda to undermine the crypto sector.

Barney Frank, a board member at Signature, alleged that their bank was shut down because of its connections to cryptocurrency. A banker involved in the process described it as an orchestrated execution without the chance for the bank to consolidate its position. The New York Department of Financial Services denies these assertions.

Further investigation uncovered serious irregularities during Signature's sale. The FDIC obstructed the transfer of $4 billion in crypto-related deposits to the acquiring bank, Flagstar, and restricted the sale of Signature's SigNet network, which enabled crypto transactions around the clock.

Echoing this sentiment, the WSJ Editorial Board highlighted the FDIC's refusal to sell crypto-related assets as evidence of regulatory hostility towards the sector.

The unprecedented pressure was also evident with Silvergate, which voluntarily liquidated rather than risk its business model heavily reliant on crypto deposits. Even fundamental changes in regulatory policy were communicated in ways that effectively decimated their operations, as over 90% of Silvergate's deposits were known to come from the crypto space.

Silvergate's management remains virtually silent on these matters as they navigate ongoing legal challenges.

In conclusion, the closed-off nature of banking in relation to cryptocurrency continues to pose challenges for the industry, with U.S. entrepreneurs facing significant barriers. This situation raises crucial questions regarding the rightful role of federal regulation in managing financial services intended for diverse legal industries.