Silvergate Insolvency Concerns Boost Hopium for Stablecoins

Stablecoin volume is rising as the crypto bank’s latest outage – Silvergate – continues to worsen.

Silvergate, the crypto-friendly bank, is facing an exodus of customers and a sharp fall in its share price as the bank faces a barrel of insolvency.

Silvergate is dealing with selling pressure

Silvergate, one of the most prominent banks in the crypto industry, has built a reputation for attracting customers who own digital assets. The California-based institution offers a range of services tailored to the needs of crypto businesses, including financing, bank transfers and custody solutions.

The bank is a pioneer in cryptocurrencies and one of the first to recognize the potential by offering specialized banking services to the industry.

Crypto-focused US bank, Silvergate Source: The Guardian

Silvergate is now considered a specialist in digital assets and most of the deposits came from traditional banking clients. The bank moved from a small regional presence over the past decade to a central bank with $12 billion in deposits in the third quarter of 2022. Silvergate has a client list that includes major crypto institutions such as Coinbase, Gemini, FTX and BlockFi.

However, the institution suffered a serious blow after its involvement in the bankrupt exchange FTX. As the crypto contagion spread, the bank faced repercussions, even under the radar of regulators.

Old fashioned bank run

Meanwhile, the share’s value has halved since news of Silvergate’s missed SEC reporting. Claiming it would delay the submission of its annual report.

Silvergate price action and its relationship to past collapses Source: Bankless
Silvergate price action and its relationship to past collapses Source: Bankless

The news adds growing concern that Silvergate Bank may be in the death throes of insolvency after an $8 billion withdrawal. Silvergate’s major crypto clients have suspended their business with the institution.

Clients include Coinbase, Circle, Paxos,, Bitstamp, Cboe Digital Markets, Galaxy, and Gemini. After the exodus, the second most shorted stock is now trading below $6.

Indeed, this has sparked numerous questions and doubts on social media platforms. There is heightened disapproval of crypto’s resilience among centralized financial entities. The small handful of crypto banks – most notably Silvergate (and Signature) – are convenient bottlenecks and easy targets for anti-crypto regulators to undermine the industry.

The Bankless team shared a quote about the brewing situation that read:

“A TradFi blowout should to push regulators to establish clearer guidelines and protections for good faith actors looking to innovate, but in all likelihood the federal government will simply use this as another excuse to put up roadblocks for institutional players embracing crypto.

Investors are jumping ship for a cash alternative as the situation unfolds.

Moody’s demotes Silvergate

Silvergate Capital has blown up its Exchange Network (SEN) in a “risk-based” decision following a downgrade of Moody’s deposit rating. The Exchange Network (SEN) serves as a critical ramp for US crypto investors to move between crypto companies.

Are stablecoins the answer?

Will stablecoins become more important to traders with the demise of SEN? Ergo relies on digital assets as a replacement for traditional finance. This could explain the increase in activity around stablecoins. The volume around stablecoins continues to reach new heights.

A report shows that the market share of the dollar-to-Tether trading volume (for BTC trading pairs) has increased from 3% to 92%.

The trading volume of Dollar vs.  USDT Source: Kaiko
The trading volume of Dollar vs. USDT Source: Kaiko

The market research company team stated:

“With the death of SEN, stablecoins are likely to become even more ubiquitous among traders. Instead of depositing your dollars on an exchange, you deposit them with a stablecoin issuer, receive stablecoins, and then transfer them to an exchange.

Racing towards quality and transparency

Such instances offer a deep dive into trustworthy entities within the crypto market.

Such as stablecoins – digital assets created to maintain stable value, often pegged to fiat currencies such as the US dollar. Consequently, they are considered ideal as anti-inflation tools for several reasons:

  1. Stability: Stablecoins are designed to maintain a stable value, making them less sensitive to market fluctuations compared to other cryptocurrencies. This stability helps protect against inflation as the value of the stablecoin remains relatively constant.
  2. Accessibility: Stablecoins are often easily accessible to anyone with an internet connection, making them a useful tool for anyone looking to protect their wealth from inflation.
  3. Liquidity: Stablecoins are often highly liquid and can be easily converted into other assets or fiat currency. This liquidity makes it easy to use stablecoins as a store of value, as they can be easily converted back to traditional currencies when needed.
  4. Transparency: Many stablecoins are built on blockchain technology and offer a high degree of transparency and accountability. This transparency helps to build confidence in the stability of the stablecoin and can give investors more confidence in their investment.

Are stablecoins commodities or currencies?

Like gold, the definition of a stablecoin often interchanges depending on the end use. For example, stablecoins can be viewed as a currency when used as a medium of exchange to pay for goods and services.

Conversely, if a stablecoin is used as a store of value or for speculative investment, it often plays a role as a commodity. In such cases, people can buy stablecoins as a hedge against inflation or market volatility. Stablecoin holders often try to take advantage of price fluctuations such as currency arbitrage.

Regulators have locked horns with crypto innovation and will continue if the aforementioned cases pan out. But today history has shown complete confidence in centralized exchanges that can further exploit the system. That is why diversification is crucial. Meanwhile, there is still ambiguity about the regulations in stablecoins.


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