Shares of the cryptocurrency bank Silvergate Capital (SI 1.09%) continued their impressive run this week. The bank traded more than 10% higher as of 2 p.m. EDT and is up more than 35% this week, following positive news for the bank and cryptocurrencies in general.
Although it has a traditional bank charter, Silvergate is not your typical bank. It has drawn a lot of investors in with its Silvergate Exchange Network, which is essentially a payments ecosystem that enables institutional traders to conduct instant transactions with cryptocurrency exchanges and others on the platform.
The bank also provides Bitcoin-collateralized lines of credit and struck a blockbuster partnership earlier this year with Facebook to become the sole issuer of the social media giant's planned U.S. dollar stablecoin.
There seem to be three big things driving Silvergate higher over the last week. First, Morgan Stanley analyst Ken Zerbe initiated coverage on Silvergate with a very bullish rating. Then, Federal Reserve Chairman Jerome Powell clarified that he does not intend to ban any cryptocurrencies or stablecoins. Lastly, there has been a solid rally among cryptocurrencies like Bitcoin recently. Because of how much business Silvergate does in the crypto space, it will naturally move at least somewhat correlated with that of Bitcoin and the crypto market.
I remain bullish on Silvergate Capital. As I have written in the past, although there is regulatory risk with some of the activities at Silvergate, I believe that risk may not necessarily be as bad as some fear.
SEN draws in tons of zero-cost deposits, helps the bank make fee income by cross-selling other products at the bank to clients on SEN, and in general, should be able to grow loans and interest-earning assets at a much faster pace than the banking industry overall.