- Silvergate Capital (+3.34%) sees its shares soar as it delivers outsized quarterly performance versus other Wall Street banks by catering to the growing cryptocurrency industry.
- The bank is still susceptible to volatility in cryptocurrency prices and has seen its shares whipsawed alongside the broader movements in the cryptocurrency market.
While major Wall Street banks have been reporting sharp falls in their profits thanks to a steep reduction in dealmaking and capital raising, a tiny (by Wall Street standards) bank that caters to the crypto crowd has been making coin (no pun intended).
Shares of Silvergate Capital, one of the first few banks to open its doors to cryptocurrency companies that were treated like pariahs by other financial institutions, surged by the most in over a month this week as quarterly earnings came out well ahead of consensus forecasts.
Although 2022 has been a rough year for cryptocurrencies, Silvergate Capital was able to report earnings per share of US$0.79, almost double the average analyst estimate of just US$0.45, according to data compiled by Bloomberg.
Helping things along at Silvergate Capital has been the number of cryptocurrency customers which soared to over 1,500 from a year earlier, an increase of over a third.
Cryptocurrencies have had a rough first quarter, with Bitcoin losing around 7% and Ether around 18%, even though both have rebounded in the second quarter.
Nevertheless, greater institutional interest and participation in cryptocurrencies, as well as copious amounts of venture capital money flowing into the space has helped fuel cryptocurrency deposits at Silvergate Capital to a whopping US$14.7 billion.
Without being hamstrung by the strictures and stiff culture of Wall Street, the La Jolla, California headquartered bank has seen its Exchange Network Leverage program, which helps customers access capital through dollar loans collateralized by Bitcoin, soar to US$1.1 billion.
And earlier this year, the ever Bitcoin-hungry MicroStrategy (-4.69%) confirmed that it had received a US$205 million loan from Silvergate Capital, backed by about US$820 million in Bitcoin using Silvergate’s Exchange Network Leverage program.
Nevertheless, companies involved in the picks-and-shovels trade associated with cryptocurrencies are not immune from the volatility inherent in the nascent asset class.
Shares of companies like MicroStrategy, Silvergate Capital and Coinbase Global (-2.74%), have all swung wildly with the movement in cryptocurrency prices.
