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Silvergate Bank, once a prominent player in the crypto-friendly banking sector, may have survived if not for pressure from U.S. regulators, according to Nic Carter, a partner at Castle Island Ventures. Carter suggested that Silvergate’s forced liquidation was part of a broader governmental effort to undermine the cryptocurrency industry.
In a recent article for Pirate Wires, Carter revealed that the Biden administration allegedly pressured Silvergate to cap its crypto deposits at 15%, or face severe consequences. This action, according to Carter, was part of what he terms “Operation Choke Point 2.0,” a coordinated effort to limit banking services for the cryptocurrency sector.
Crypto Companies’ Reliance on Banks
“The government’s intent to decapitate the domestic crypto industry by targeting crypto-focused banks was clear, and it only worsened the 2023 banking crisis,” Carter said. He stated that digital asset companies rely heavily on banks to manage deposits, process customer transactions, and handle operating expenses.
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Silvergate, along with Signature Bank and Silicon Valley Bank, faced immense regulatory pressure throughout 2023. Carter highlighted the Federal Deposit Insurance Corporation (FDIC) and key lawmakers, such as Senator Elizabeth Warren, as being instrumental in forcing the closure of these banks.
The collapse of crypto exchange FTX only fueled regulatory scrutiny, prompting demands for the banks to disclose their involvement with crypto firms.
An insider from Silvergate told Carter that the bank had no choice but to comply with the 15% cap or shut down. “When your primary regulator threatens you, you comply,” the source said. This rule was never publicly discussed or formalized, but it left Silvergate with limited options.
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True Cause of Silvergate Downfall
Carter also questioned the bank’s decision to pursue voluntary liquidation rather than FDIC receivership, calling it “suspicious.” He noted that such actions have occurred rarely over the past few decades, raising doubts about the true cause of the downfall.
Despite the challenges, Carter argued that Silvergate could have weathered the storm if the 15% limit had not been imposed. He pointed to the bank’s improving balance sheets as crypto markets rebounded in late 2023, suggesting that it was not a business failure, but rather regulatory interference that sealed Silvergate’s fate.
While acknowledging that Silvergate had room to improve its money laundering controls, Carter maintained that it didn’t deserve to be “harassed out of existence.”
Carter’s remarks come at a time when U.S. leadership, including Vice President Kamala Harris, continues to emphasize the country’s dominance in emerging technologies like blockchain and artificial intelligence.
