It was reported last week that Silvergate Bank, the bankrupt crypto lender with FDIC affiliation (a rarity in the industry), received a $4.3B bailout from the San Francisco-based Federal Home Loan Bank, following the collapse of crypto exchange FTX, according to the firm’s Q4, 2022 filings.
US taxpayers, without their consent, have just bailed out this bankrupt crypto bank– and it barely made the news. Silvergate was the first, of what is to be many bailouts for crypto. As much as the crypto community howls about “de-fi, privacy & freedom”; it needs a bailout even more. Industry players have been angling for this since the FTX collapse.
To review, Silvergate provided banking services to crypto exchanges & investors, with ~90% of its deposits from crypto. Silvergate’s 10 biggest depositors, include bankrupt firms such as: Coinbase, Paxos, Crypto.com, Gemini, Kraken, Bitstamp & Circle. As a result of the FTX collapse in November, Silvergate was bankrupt, as it held worthless deposits for both FTX & Alameda Research.
Market manipulation is what is driving the current bitcoin bounce. This, along with venture capital, is what is sustaining the crypto industry on life support. Market manipulation through wash trading, and other pump & dump tactics are the rule in crypto. Wash trading is when a firm trades with itself to artificially boost prices, to give the illusion of liquidity & generate interest from investors. A recent paper from the National Bureau of Economic Research found that wash trades accounted for 50-70% of all crypto transactions, suggesting most trades on these platforms are fraudulent.
For example: bitcoin’s price had been languishing at ~$17K for weeks, but as of last week it has slowly been going up. Bitcoin currently sits at over $21K, and no one can explain why, as investors are leaving the industry in droves, lay-offs are everywhere, and hardly a day goes by without some news of another crypto firm, exchange, bank, etc, having liquidity issues. So where is all this money coming from? As it turns out, it’s now coming from the taxpayers.
Update: Sat 21 Jan 2023 5:50 AM CST
Silvergate Bank ($4.3B), Signature Bank ($11.3B), Provident Bancorp ($80M), and Ally Financial ($7.2B) have been bailed out by the Federal Home Loan Banks program, which is ostensibly meant to fund home loans. This is surely the tip of the iceberg as there are many others we don’t know about– yet. US taxpayers support FHLB financing, as their bonds are implicitly backed by Congress, which would not allow a default, hence their AAA rating from Moody. Should one of these crypto-friendly banks fail, FDIC accounts would be second in line, after the FHLB, in claims resolution. Banks always get bailed out first. Bloggers are the only ones reporting this story, as the corporate media is maintaining silence on this massive & secret crypto bailout scheme.