For Silvergate, There Were No Safe Havens
The lesson in Silvergate's fall isn't just about the risks of crypto — it's about the risks in "safe" assets too.
Photographer: SOPA Images/LightRocketIn this edition of the Bloomberg Crypto newsletter, Michael P. Regan sees market risks everywhere:
The “out of business” signs that have been piling up in the crypto world now include one for a traditional(ish) bank that had the gumption to focus on the digital-asset space.
The collapse of Silvergate Capital Corp. is widely being heralded as a result of the spectacular blowup of FTX, a onetime client, and the other assorted ugliness in crypto markets in the past year. And that’s certainly true. After all, Bitcoin plunged 64% in 2022, Ether sank 67% and a bunch of other smaller but high-flying coins lost even more.
Yet — importantly — this is also a story about the ugliness in the boring, old bond market that serves as the bedrock of traditional finance.
When a bank run occurs, the institution typically needs to start selling assets to fulfill the demand for withdrawals from depositors. And that’s exactly what Silvergate did: It unloaded a considerable chunk of its securities portfolio. It’s not clear exactly what it sold earlier this year, but its portfolio included US government debt, agency securities and municipal bonds. In other words, some of the — quote unquote — “safest” securities available.