Crypto Bank Silvergate Says Genesis Exposure ‘Minimal’

Crypto-centric bank Silvergate said its exposure to bankrupt lender Genesis has been limited.

The bank made this announcement in an update Friday (Jan. 20), one day after Genesis filed for bankruptcy and three days after Silvergate said the cryptocurrency industry’s ongoing downturn had led to a $1 billion loss.

“While this continues to be a turbulent time in the digital asset industry, Silvergate’s exposure to Genesis is minimal and customers’ deposits are, and have always been, safely held,” the company said.

“Silvergate’s deposit relationship with Genesis was less than $2.5 million as of both December 31, 2022 and January 19, 2023. Genesis is not a custodian for Silvergate’s bitcoin-collateralized SEN Leverage loans and Silvergate has no outstanding loans to nor investments in Genesis,” the company said.

Genesis filed for bankruptcy on Thursday (Jan. 19), seeking protection for itself and two of its lending business subsidiaries — Genesis Global Capital and Genesis Asia Pacific.

“While we have made significant progress refining our business plans to remedy liquidity issues caused by the recent extraordinary challenges in our industry, including the default of Three Arrows Capital and the bankruptcy of FTX, an in-court restructuring presents the most effective avenue through which to preserve assets and create the best possible outcome for all Genesis stakeholders,” Genesis Interim CEO Derar Islim said in a news release.

Genesis, a unit of Digital Currency Group (DCG), owes its 50 top creditors around $3.4 billion. The bankruptcy filing said these creditors include lenders that were part of an agreement with Gemini Trust, who collectively are owed about $766 million.

Silvergate, meanwhile, announced it was cutting jobs and taking other actions on Tuesday (Jan. 17) to remain afloat amid anticipation of reduced deposits following its $1 billion loss.

“During the fourth quarter of 2022, the digital asset industry experienced a transformational shift, with significant over-leverage in the industry-leading to several high-profile bankruptcies,” the company said in a news release. “These dynamics created a crisis of confidence across the ecosystem and led many industry participants to shift to a ‘risk off’ position across digital asset trading platforms.”

PYMNTS noted Sunday (Jan. 22) that Silvergate and another crypto-centric bank, Signature Bank, had reportedly turned to the federal mortgage system, borrowing billions to deal with an uptick in customer withdrawals.

Signature borrowed nearly $10 billion from the Federal Home Loans Bank system in the fourth quarter, the Wall Street Journal reported, while Silvergate borrowed $3.6 billion. Both banks saw a rise in outflows of crypto-related deposits from customers last year.