The somewhat hyped Consensus 2018, witnessed a deep interest in a San Diego-based small community money-lender Silvergate Bank. It has been hailed as a lifeline for cryptocurrency exchanges and enterprises which have been shown the exit by Wall Street banks.
The Lifeline for the Crypto Industry
According to a report in CNBC, 2017 saw the tiny community bank more than double its assets to $1.9 billion. In 2014, the bank rolled out its services to cryptocurrency exchanges despite fears that the up and coming asset class potential proffered ties to money laundering. It currently serves more than 250 international clients.
Silvergate has a history of roughly 30 years and has three branches in southern California. CEO Alan Lane said:
“I put two and two together, and I thought, well it might disrupt banking long-term, but in the short-term, these companies need banks.”
While investment kingpin Warren Buffet has also expressed his disdain towards bitcoin, calling it “rat poison,” Lane continues to be unbothered by all the ruckus, as Silvergate is open 24/7 for attracting new customers and gaining trust among cryptocurrency exchanges.
Lane started reading about it in 2013 and speculated how it could indeed disrupt the whole banking mechanism as we know it today. He also discovered that the “distributed ledger” technology could theoretically enable people to become their own banks. Of course, this would involve no security aid from third parties, as evident currently.
The potential benefits of bitcoin prompted Lane to invest some amount in the pioneer cryptocurrency. During his research, Lane also found out that the companies which were actively dealing with cryptocurrencies were being shunned by the majority of banks at the Wall Street level. He thus found a niche opportunity for Silvergate to capitalize on the same.
Alan Lane, CEO of Silvergate
Selling Spades in a Gold Rush
Silvergate’s entrance in the cryptocurrency sector was in 2013 when the industry was in its nascent stages and unnoticed by many. At the time, Lane invited cryptocurrency exchanges to his office, to understand their needs, requirements, and how Silvergate could be helpful.
After several rounds of talks, Silvergate decided to conduct their business as a state chartered bank, which necessarily required certifications from the California State Banking Department and Federal Reserve Bank of San Francisco.
They successfully presented their strategy to the two regulators in 2014 and were awarded the required licenses. Lane explained:
“That open communication with the regulators early on has proven to be really foundational. We’re very collaborative with the regulators, we ask them if they have suggestions, and what we can do better.”
Major Silvergate clients include the Winklevoss twins’ Gemini exchange, Paxos, bitFlyer, and Kraken.
Investors Convinced of Long-Term Vision
Over half of the bank’s shareholders are entirely convinced of its long-term vision with regards to cryptocurrencies and have reportedly invested $114 million to expand Silvergate’s cryptocurrency offering. One of the significant developments after the fund injection is the bank’s plans to expand its cryptocurrency fintech team to 40 people, in critical roles that include government compliance.
From a macro-level, the bank’s willingness to work with cryptocurrency exchanges is extremely vital to the digital assets sector. Not only is this move uncommon in the industry, Silvergate has had no problem with sticking out from the pack.
While most banks are typically an organization for the safekeeping of customer assets, Silvergate is modeled as a clearinghouse and facilitates real-time transactions for cryptocurrency exchanges.
As such, Silvergate and its corporate clients represent a rising breed of customers, who are betting on the volatile digital asset following widespread institutional adoption.