The good news about the collapse of Sam Bankman-Fried’s cryptocurrency empire is that its failure did not send shock waves through the entire financial system and create a contagion. A key reason is that most banks have refused to deal with crypto. Recently, U.S. banking regulators even discouraged them from doing so.
But one small California bank apparently decided it was better to risk having to beg for forgiveness than wait for permission. In recent years, La Jolla–based Silvergate went all in on crypto, forging relationships with more than 1,600 players in the industry, from hedge funds to exchanges to token projects. That includes alleged fraudsters like Bankman-Fried along with a slew of other sketchy companies and individuals who used Silvergate to move a trillion dollars into — and out of — crypto markets all over the world. With regulators and investors alike casting a sharper eye on the crypto world after the chaos of the past year, Silvergate now faces unanswered questions about its crypto products and its future business prospects in general.
The bank’s outsize role in the recent crypto bubble — and bust — is perhaps best described by Bankman-Fried himself. As the indicted FTX founder put it in a now-deleted testimonial on the bank’s website, “Life as a crypto firm can be divided up into before Silvergate and after Silvergate. It’s hard to overstate how much it revolutionized banking for blockchain companies.”
In the wake of FTX’s collapse, critics of the bank’s practices believe further regulatory scrutiny of that revolution will leave Silvergate in an unsustainable situation. Intelligencer has obtained documents showing that, in addition to FTX, Silvergate has been the go-to bank for more than a dozen crypto companies that ended up under investigation, shut down, fined, or in bankruptcy.
You can read my story on NYMag.com here: