Washington Post: Silvergate\’s bad debts are deposits rather than assets

On March 6, according to the Washington Post, if Silvergate Capital Corp. fails, it may become the first bank to fail due to non-performing liabilities rather than non-performing assets, because its bad debts are deposits rather than assets. The deposit of Silvergate is not a deposit in the normal sense. Its characteristics are more like the floating cash held by remittance companies such as MoneyGram International or Western Union. The only reason Silvergate attracts cash is to settle the transaction of entering and leaving a specific group of assets. However, the deposit movement speed of Silvergate may be much slower than the floating speed of this cash, as long as the market’s interest in cryptocurrency decreases, The depositors will begin to disappear.

Interpretation of this information:

The Washington Post stated that Silvergate Capital Corp.’s potential failure could make it the first bank to fail due to non-performing liabilities rather than non-performing assets. This is because the bad debts incurred by the bank are primarily in the form of deposits rather than traditional assets. Unlike regular deposit-taking institutions, Silvergate’s deposits are more akin to the floating cash held by remittance companies such as MoneyGram International or Western Union.

The primary purpose of Silvergate’s deposit-taking activities is to facilitate the transaction of entering and exiting a specific group of assets, namely cryptocurrencies. This highlights the bank’s primary focus on the rapidly-evolving and notoriously volatile cryptocurrency market. However, the deposit movement speed of Silvergate may be much slower than the rapid movement of these cryptocurrencies. As such, it could be argued that the bank’s depositors run a higher risk of losing their investments if the cryptocurrency market falls and the bank is unable to quickly and efficiently convert these assets into cash.

Furthermore, should the market’s interest in cryptocurrencies decrease, it is likely that Silvergate’s depositors will begin to disappear. This could be due to concerns about the stability and potential profitability of the cryptocurrency market. In turn, this could lead to a further decline in the bank’s activities and revenue, and ultimately, its possible failure.

Overall, this message reveals an underlying concern with the ongoing development and regulation of the cryptocurrency market. While Silvergate’s business model is unique, it highlights the potential risks and uncertainties that can arise when financial institutions specialize in volatile and untested markets. As such, it is important for both regulators and investors to carefully consider and monitor the risks and opportunities associated with the rapidly-evolving world of cryptocurrency.