Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Silvergate Capital Are Surging This Week

By Bram Berkowitz – Nov 4, 2021 at 3:48PM

Key Points

  • An analyst issued a report that said Silvergate Capital's stock price movement is closely correlated to that of Bitcoin's.
  • President Joe Biden's Working Group on Financial Markets released a report on stablecoins that also could be favorable for the stock.

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

A report from an analyst and another from the President's Working Group on Financial Markets might be driving the move.

What happened

Shares of the crypto bank Silvergate Capital (SI -3.76%) are up nearly 37% since the close of trading last Friday after an analyst issued a note regarding the company's correlation to Bitcoin (BTC 1.36%). Shares may also be moving because of a report released by President Joe Biden's Working Group on Financial Markets regarding stablecoins.

So what

On Monday, an analyst at Morgan Stanley noted in a report that Silvergate's stock price movement was correlated with that of Bitcoin. If you've been following the business, then this should come as no surprise because the bank's entire business model is built on its real-time payments network that supports and facilitates crypto trading.

Because the payments system can clear transactions instantly and at any time, and Bitcoin and other cryptocurrencies trade around the clock, the payments system is appealing to institutional crypto traders and crypto exchanges.

Green squiggly line moving higher.

Image source: Getty Images.

With Bitcoin absolutely taking off toward the end of 2020, Silvergate's stock has followed its ascent. On its recent earnings call, Silvergate management confirmed that transfer volume on its payments network is correlated to crypto spot-trading volume.

Also on Monday, the President's Working Group on Financial Markets issued a report on stablecoins suggesting that Congress pass laws that only enable insured banks to issue stablecoins because banks are a highly regulated industry.

This would appear to be good news for Silvergate because it is a licensed bank. Additionally, Silvergate has formed a partnership with Meta Platforms' (META 3.01%) Facebook to become the exclusive issuer of its Diem stablecoin. Management on the bank's third-quarter earnings call hinted that it was waiting for the president's report to come out before launching the Diem pilot, so hopefully the pilot can be launched soon.

Now what

Even after the big run-up in its stock price, Silvergate still only trades at a roughly $5.7 billion market cap, so perhaps there is a whole new side of the market waking up to the stock.

At roughly $214 per share, Silvergate trades at 79 times earnings. That's high, but I continue to hold my shares for the time being due to all of the momentum in the business, particularly with the potential launch of the Diem pilot.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Bram Berkowitz owns shares of Bitcoin and Silvergate Capital Corporation. The Motley Fool owns shares of and recommends Bitcoin and Meta Platforms, Inc. 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.