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