In a filing with the U.S. Securities and Exchange Commission on Thursday, cryptocurrency bank Silvergate Capital (SI) disclosed that it had laid off 40% of its workforce, or about 200 employees. The announcement caused its shares to drop 46% to $11.76.
The bank also scrapped its ambitions to introduce a digital currency and wrote down the $196 million associated with its purchase of Diem Association’s technology and assets from Facebook parent Meta Platforms (META). Facebook’s attempt to develop a stablecoin, or cryptocurrency tethered to the dollar or another stable asset, was Diem, formerly known as Libra.
Diem had announced that Silvergate will purchase its assets and technologies in February of last year.
According to a press release from Silvergate CEO Alan Lane, they took commensurate steps to ensure that they were maintaining cash liquidity in order to satisfy potential deposit outflows in response to the rapid changes in the digital asset industry during the fourth quarter, and they currently maintain a cash position in excess of their digital asset-related deposits.
Last year, the industry experienced a significant downturn due to macro headwinds and contagion from the collapse of crypto firms such as Celsius Network and FTX. Some businesses declared bankruptcy, owing largely to the poor performance of bitcoin (BTC) and ether (ETH), the two largest cryptocurrencies by market capitalization. In 2022, both will have dropped by more than 60%.
Nonetheless, the Silvergate Exchange Network continued to operate in the fourth quarter with an average daily trading volume of $1.3 billion, up from $1.2 billion in the third quarter.
However, the bank saw a $8.1 billion decline in deposits of digital assets during the fourth quarter. Silvergate lost $718 million when it sold $5.2 billion worth of debt instruments to offset the withdrawals.
Customer deposits decreased from $11.9 billion in the third quarter to $3.8 billion in the fourth quarter.
The digital asset market has undergone significant change. Numerous high-profile bankruptcies have been caused by significant overleverage, which has also triggered an industry-wide crisis of confidence. Several industry players have changed to a risk-off, added Lane.