Silvergate Capital shares sink as crypto-related deposits plunge

Silvergate Capital Corp reported a sharp drop in fourth-quarter crypto-related deposits on Thursday as investors spooked by the collapse of industry major FTX pulled out more than $8 billion of capital, sending shares down nearly 39% premarket.

The crypto-focused bank also said it would cut its workforce by 40%, or about 200 employees, as it tries to rein in costs amid a deepening industry downturn.

The dire preliminary earnings report shows the extent of the impact on the digital asset industry from the downfall of FTX, which filed for bankruptcy in November after failing to cover customer withdrawals, marking a stunning reversal of fortunes for what was one of the world's biggest crypto exchanges.

Silvergate had said earlier it had no outstanding loans or investments in FTX, but its shares have shed 69% of their value since the exchange's meltdown, which sparked a wild crypto sell-off.

"We are in a period of 'shoot first, ask questions later' for any bad news related to crypto and crypto-related businesses," said Thomas Hayes, chairman and managing member at investment firm Great Hill Capital.

"We expect this carnage to continue for some time as there is no way to value the underlying asset."

Rising interest rates also crushed the industry last year, which lost more than a trillion dollars in value.

Slowing the expansion of its business, La Jolla, California-based Silvergate is also delaying the launch of a blockchain-based payment solution.

It would take an impairment charge of $196 million in the fourth quarter on assets purchased from Meta Platforms Inc-backed Diem Group for the payment solution venture.

Total deposits from digital asset customers declined to $3.8 billion at the end of December from September. The company sold $5.2 billion of debt securities at a loss of $718 million in the fourth quarter to maintain liquidity.