Jim Cramer explains Silvergate’s failure on Mad Money

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

Jim Cramer talked about why Silvergate is a ‘pivotal’ part of the crypto ecosystem on Mad Money, CNBC.

Silvergate’s shares plummeted, losing more than 43% yesterday, then another 2% or so. They are down by more than 90% from their all-time high in November 2021. According to the bank, the crypto industry’s breakdown caused a run on deposits, prompting it to fire 40% of its staff and sell assets at a major loss. Silvergate held deposits for FTX units and Alameda. 

Stocks can always go lower 

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

The bank made a series of horrifying disclosures, which caused (the drastic fall). If we don’t address it, I worry that the market cap will shrink to the point where we won’t be allowed to talk about it on air. 

History of Silvergate Bank

Silvergate Bank was founded as a savings and loan association in 1988. It was transformed into a bank in 1996 by Dennis Frank and Derek J. Eisele. At first, it was quite small with just three branches in southern California. 

In 2013, CEO Alan Lane made a personal investment in Bitcoin, and the bank went into crypto. They launched services to companies in the crypto space, especially crypto exchanges. They got in very early according to Cramer, when most banks didn’t want to have anything to do with Bitcoin. Then, it was “really only Bitcoin.” 

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

Why did they fail?

As mentioned, the price is now down over 90% from then. Cramer explains:

Silvergate established 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 were working on their own stablecoin, like a pseudo money market fund (MMF) that allows you to go in and out of the market without friction, which is the most dangerous link in the crypto chain.