Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Silvergate Capital Are Falling Today

By Bram Berkowitz – Oct 19, 2021 at 11:50AM

Key Points

  • Utilization on the Silvergate Exchange Network slowed in unison with the slowdown in overall cryptocurrency trading volume.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company reported earnings results for the third quarter of 2021.

What happened

Shares of the crypto bank Silvergate Capital (SI -4.64%) had fallen roughly 10% as of 11:25 a.m. EDT after the company reported earnings results for the third quarter of the year.

So what

The bank reported diluted earnings per common share of $0.88 and total revenue of $51.7 million. Both numbers beat analysts' estimates for the company in the quarter.

However, Silvergate is not like a traditional bank because it operates heavily in the cryptocurrency space. The bank has built a payments platform called the Silvergate Exchange Network (SEN), which allows two parties on the network to clear transactions instantaneously. This is particularly attractive for institutional traders and cryptocurrency exchanges because cryptocurrencies trade nonstop.

Growth on the SEN slowed in Q3, as the bank added 80 new customers to the platform in Q3 versus 120 in Q2. SEN utilization also dropped from nearly $240 billion in Q2 to $162 billion in the quarter.

Red line with arrow moving downward.

Image source: Getty Images.

Now what

SEN utilization dropped because overall trading volume in the cryptocurrency industry dropped, which SEN activity is correlated with. The price of Bitcoin was also not as volatile in Q3, starting the quarter around $35,000 and ending the quarter close to $44,000.

However, the price of Bitcoin has already risen significantly in October, and there could be a lot more interest in the industry with the recent launch of the first Bitcoin futures exchange-traded fund, so I expect Silvergate to bounce back in Q4.

Silvergate's earnings will be lumpy from time to time and the stock has risen a lot since the end of September, so a pullback isn't a huge surprise. But I still think this is an excellent stock to own, and one that has a significant competitive advantage over the rest of the banking industry.

Bram Berkowitz owns shares of Bitcoin and Silvergate Capital Corporation. The Motley Fool owns shares of and recommends Bitcoin. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.