What happened
Shares of several cryptocurrency-related stocks made big moves today, although not always in the same direction and for different reasons. Shares of the crypto bank Silvergate Capital (SI +2.34%) shot up more than 18% as of 3:30 p.m. EDT today, while shares of the large cryptocurrency exchange Coinbase Global (COIN 2.58%) had risen 3.7%. Meanwhile, shares of the cryptocurrency-mining company Bit Digital (BTBT 7.53%) plunged roughly 14.5%.
So what
Shares of Silvergate Capital made the biggest move after Morgan Stanley analyst Sheena Shah issued a research note that said "Silvergate's equity price has tracked bitcoin well over the past year." Shah added that "The correlation between the two appears to rise during crypto bull markets." This shouldn't come as a huge surprise if you've been tracking the company.
Silvergate has created a real-time payments system that is primarily to help institutional crypto traders execute transactions between other traders and crypto exchanges more efficiently. So, in times of volatility when there are more trades being made, this clearly benefits Silvergate. Management confirmed this on its recent earnings report when it showed a correlation between crypto spot trading in the third quarter and transaction volume on Silvergate's real-time payments platform, the Silvergate Exchange Network (SEN).
Image source: Silvergate Capital Q3 investor presentation.
As made evident here, SEN transfer volume closely tracked crypto spot trading. However, it wasn't completely identical, as crypto spot trading volume in Q3 declined 43%, while SEN volume only declined 32%. This is even better for Silvergate because Shah noted there is a closer correlation during boom times. The other exciting thing to consider is that retail investors still make up most of the $2.5 trillion cryptocurrency market, so a further pickup in institutional interest should benefit players like Silvergate.
Shares of Coinbase climbed today in line with cryptocurrencies such as Bitcoin and Ethereum, as the stock also moves in a correlated fashion with the broader crypto market. But the other piece of news that might have moved Coinbase today had to do with the fact that another crypto exchange, Binance, had to temporarily disable crypto withdrawals "due to a large backlog."Although Binance got things fixed, tech issues can frustrate traders and lead to them choosing a competitor.
Image source: Getty Images.
Lastly, shares of Bit Digital continued to be volatile after experiencing what appeared to be a short squeeze Friday that sent shares up some 42%. Since then, shares have fallen back but are still up roughly 20%.
Now what
Looking ahead, I remain bullish on Silvergate Capital because the company has a first-mover advantage with SEN and with institutional interest in cryptocurrencies gaining. SEN and other infrastructure Silvergate is developing can also help other companies mint and burn stablecoins, which could be a huge opportunity.
Coinbase is on a good run, although it still looks to have upside relative to the consensus price target from analysts, while Bit Digital could remain volatile right now with the short squeeze in play.
