Who are Silvergate’s Crypto Customers?
Digital Currency Exchanges
Q4 2018: 37 customers and $615.8M in deposits
Q3 2018: 35 customers and $792.9 million in deposits
Q4 2018: 363 investors and $577.5 million in deposits
Q3 2018: 339 investors and $572.7 million in deposits
Q4 2018: 142 customers and $273.9 million in deposits
Q3 2017: 109 customers and $227.5 million in deposits
San Diego-based Silvergate Bank brought on new customers at the end of 2018, but saw its digital deposits decrease quarter-over-quarter. The crypto-friendly bank filed for an IPO last November, with a price target of $50 million.
Silvergate, a wholly owned subsidiary of Silvergate Capital Corp., added 59 new digital currency customers in the quarter ending December 31, for a total of 542, according to an amended prospectus filed on March 18. Despite that, Silvergate Bank reported a 7 percent decrease in non-interest-bearing deposits quarter over quarter, from $1.7 billion in the quarter ending Sept. 30 to $1.58 billion by year’s end.
Year-over-year, Silvergate more than doubled the number of digital currency customers, and reported an 8 percent increase in non-interest-bearing deposits. Some of its users include Luxembourg-based cryptocurrency exchange Bitstamp, blockchain-focused investment firm Kenetic, and Xapo, a company that makes a bitcoin wallet combined with a bitcoin-based debit card.
According to a breakdown of Silvergate’s digital currency business, all of the decrease in deposits could be attributed to digital currency exchanges, which allow customers to trade cryptocurrencies for money or other digital assets. Though Silvergate added two new exchange customers, for a total of 37, it saw deposits from digital currency exchanges decrease from $792.9 million to $615.8 million.
Silvergate’s exchange customers were likely hit hard by the falling market value of digital currencies. Silvergate stated digital currencies had experienced a 77.4 percent decrease in market value from December 2017 to December 2018. For example, the price of bitcoin fell from $13,860.14 to $3,742.70.
“Over this same period, the balance of our deposits from our customers in the digital currency industry increased $150.4 million, or approximately 11.4 percent, primarily due to approximately $837 million in net deposits from new accounts for customers in the digital currency industry, partially offset by decreases in deposit balances from existing digital currency customers,” Silvergate stated in its prospectus.
Institutional investors, such as hedge funds and private equity funds that invest in digital currencies, still make up the bulk of Silvergate’s users. Silvergate had 363 institutional investors as customers in December, accounting for $577.5 million in deposits, an increase from the prior quarter.
Silvergate first began working with digital currency customers in 2013. Overall, the strategy still appears to have paid off, as cryptocurrency customers have flocked to the bank as one of the few institutions that will work with them.
“Our customer base has grown rapidly, as many customers proactively approach us due to our reputation as the leading provider of innovative financial infrastructure solutions and services to participants in the digital currency industry,” the prospectus stated.
Despite the decrease in cryptocurrency prices, Silvergate still has plenty of prospective customers in its pipeline. According to the amended prospectus, the bank had 232 prospective digital currency customers in “various stages” of its onboarding process.