Trouble Brewing: Crypto On- and Off-Ramps Face Bank Run Risk

• Federal Reserve Member Bank Silvergate Capital has been watching its depositors flee and its stock price plummet.
• Silvergate is one of the few key U.S. banks that works closely with the crypto sector due to lack of regulation around KYC/AML policy for offshore entities and issues with unregistered security offerings and fraud in the industry.
• Silvergate has been at the center of many institutions in the market, servicing 1,677 digital asset customers with $9.8 billion in digital asset deposits since November 2020.

Trouble Brewing In Crypto-Land

KYC/AML Policy Challenges

The regulatory environment surrounding know-your-customer and anti-money laundering (KYC/AML) policies presents a unique challenge to companies who are in the business of moving money or processing payments and transactions related to cryptocurrencies. This is because there are very few entities in the regulated US banking system which are willing to work with crypto firms to access established USD on- and off-ramps.

Silvergate Capital Stock Performance

Federal Reserve Member Bank Silvergate Capital has seen its depositors flee and its stock price plummet since November 2020 when it became apparent that Silvergate was playing a role in servicing FTX and Alameda by giving them access to USD rails. The bank currently services 1,677 digital asset customers with $9.8 billion in digital asset deposits, although FTX accounted for less than 10% of these deposits according to CEO comments trying to reassure markets that their current loan book has faced zero losses or liquidations so far.

Unregistered Security Offerings & Fraud

The broader cryptocurrency industry is rife with unregistered security offerings and plenty of fraud, making it difficult for regulators and government agencies to draw a clear distinction between bitcoin and other cryptocurrencies (commonly referred to as “crypto”). This further limits the number of US banking interests willing to work within this space despite increasing demand from crypto companies seeking reliable access to USD rails for payments processing or money movement purposes.

Ongoing Risk Of Bank Run

Despite reassuring comments from Silvergate’s CEO regarding their loan book not facing any losses or liquidations yet, there remains an ongoing risk of a complete bank run on Silvergate deposits due to leveraged loans being collateralized with bitcoin which can be liquidated as necessary if needed. This explains why the company’s stock performance has dropped significantly over recent weeks despite efforts made by management team members attempting to calm investor fears about their financial health going forward into 2021.


In conclusion, while there have been some positive developments surrounding crypto on-and off-ramps recently such as increased banking interests working within this space, there still remain several challenges related specifically around KYC/AML policy regulations as well as potential fraudulent activity taking place within certain areas of this industry which could lead ultimately lead to more severe consequences for individual companies like Silvergate Capital if not addressed soon enough by relevant authorities