Jim Cramer explains Silvergate’s failure on Mad Money

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  • Shares are down more than 90% from their all-time high in November 2021
  • Silvergate is a “great example of everything wrong with this industry”
  • They were working on an MMF, the most dangerous link in the crypto chain

Jim Cramer talked about why Silvergate is a “critical” part of the crypto ecosystem on Mad Money, TBEN.

Shares of Silvergate plummeted, losing more than 43% yesterday, then another 2% or so. They are down more than 90% from their all-time high in November 2021. According to the bank, the collapse of the crypto industry caused a run on deposits, forcing it to lay off 40% of its staff and sell assets at a huge loss. to sell. Silvergate had deposits for FTX units and Alameda.

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Stocks can always go lower

According to Cramer, stocks can always go lower and as long as they stay above zero it’s fine. However, Silvergate is a critical part of the crypto ecosystem because it is a “great example of everything that is wrong with this industry”. Cramer said:

The bank made a series of gruesome revelations, which caused (the drastic fall). If we don’t address it, I’m afraid the market cap will shrink to the point that we’re not allowed to talk about it on the air anymore.

History of Silvergate Bank

Silvergate Bank was founded in 1988 as a savings and loan association. In 1996 it was converted into a bank by Dennis Frank and Derek J. Eisele. Initially it was quite small with only three locations in Southern California.

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In 2013, CEO Alan Lane made a personal investment in Bitcoin and the bank transitioned to crypto. They launched services to companies in the crypto space, especially crypto exchanges. They got in very early, according to Cramer, when most banks wanted nothing to do with Bitcoin. Then it was “basically just Bitcoin”.

Silvergate grew rapidly after that, reaching $1.9 billion in assets in 2017. The company was listed at a share price of $13 in November 2019. The price had increased by 1580% by November 2021.

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Why did they fail?

As mentioned, the price has now dropped by more than 90%. Cramer explains:

Silvergate founded the Silvergate Exchange Network (SEN), a payment network for the crypto space. You can send USD to other Silvergate customers instantly, 24/7, just like crypto transactions. The bank also offered loans with Bitcoin as collateral. They worked on their own stablecoin, a kind of pseudo-money market fund (MMF) that allows you to move in and out of the market without friction, which is the most dangerous link in the crypto chain.