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HomeMarketCrypto Bank Silvergate Lifted After Block.one Buys Major Stake

Crypto Bank Silvergate Lifted After Block.one Buys Major Stake

Falling Bitcoin prices have hurt Silvergate stock, but there remains a decent bull case.

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Ozan Kose/AFP/Getty Images

Silvergate Capital,
a bank that has positioned itself at the center of institutional adoption of digital assets, has a new major owner and the beaten-down stock has reacted positively.

Silvergate (ticker: SI) stock gained 11.5% on Wednesday, before markets closed for Thanksgiving, rising another 1.1% in after-hours trading.

Brendan Blumer, the founder and CEO of blockchain software company Block.one, bought 2,934,537 shares in Silvergate—representing 9.3% of the company’s stock—according to filings with the Securities and Exchange Commission. Block.one itself purchased 2,363,186 shares, some 7.5% of the company. Both purchases were made on Nov. 16, and the filings were public with the SEC on Wednesday.

Blumer and Block.one are now the first- and third-largest owners of Silvergate, respectively, with the second largest being asset management and exchange-traded fund (ETF) giant Vanguard, according to FactSet data.

“We believe
Silvergate Capital
has shown that it consistently innovates beyond its peers within federally regulated banking frameworks,” a Thursday press release from Block.one and Blumer said. “We believe Silvergate’s current equity prices do not accurately reflect their strong balance sheet, their strategic positioning, or their market-defiant growth trajectory, and therefore offers a unique investment opportunity. We are excited to be a new passive shareholder.”

The crypto bank’s shares have dropped an eye-watering 81% this year, falling in line with the price of
Bitcoin
and other digital assets. But faring far worse than the wider stock market—the
S&P 500
has lost a comparable 16% in 2022.

At the heart of Silvergate, which is a Federal Reserve member bank, is the Silvergate Exchange Network (SEN), which is an instantaneous internal bank transfer network for dollars and euros, which allows investors to send money to crypto exchanges. A painful downturn in crypto markets this year has meant this network—at the heart of the bank’s growth strategy—has been used less, taking some of the shine off the stock.

This “crypto winter” has also pushed customers to withdraw money from the bank, with deposits falling and hurting Silvergate’s ability to make as much profit from rising interest rates as some other banks.

Silvergate is still overwhelmingly rated at Buy among the nine analysts polled by FactSet who follow the stock, with no Sell ratings. With an average price target among this group of analysts of about $53, the current share price of $28 could look attractive. 

Wall Street likes the stock, and it seems blockchain bull Blumer loves it.

Write to Jack Denton at jack.denton@barrons.com

Credit: marketwatch.com

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