What Happened
Silvergate Capital (SI 2.63%), the holding company for Silvergate Bank, saw its stock price climb 35.6% in October, according to S&P Global Market Intelligence.
This fintech, a bank and exchange for digital currency institutional investors, far outpaced the Nasdaq Composite, which was up 7% in the month. Silvergate is up about 188% year to date as of Nov. 8, trading at about $214 per share.
Image source: Getty Images.
So what
Silvergate got a bump after reporting strong third-quarter earnings on Oct. 19 with net income up 231% year over year to $23.5 million, or $0.88 per share, and 12.4% over the second quarter.
The company's digital currency customers grew 40.6% year over year to 1,305 while its average digital currency customer deposits grew to $11.2 billion -- the highest amount of company history.
Also, the firm did $162 billion of U.S. dollar transfers on its Silvergate Exchange Network (SEN), a platform that allows institutional investors to move money to digital currency exchanges and trading partners in real time, 24 hours a day. This was up 342% year over year, but down from $240 billion in the second quarter. The sequential decline in SEN utilization was correlated with the decline in spot trading volumes of Bitcoin and Ethereum, but they did not fall as much -- 32% compared to 43% for cryptocurrency spot trading.
The stock really popped at the end of the month after Morgan Stanley analyst Sheena Shah issued a research note that said Silvergate's equity price tracks with Bitcoin, the largest cryptocurrency, which has been on quite a run itself. It basically confirmed what Silvergate executives pointed out on the third-quarter earnings call. But CEO Alan Lane said that while there is a high correlation, it's not 100% and it should be less correlated as Silvergate adds more products and services:
We are in a growing industry with a growing customer base and a growing suite of products. And so while we certainly have a high correlation to spot trading volumes ... we believe that all of that is generally going to be growing up and to the right in the coming months, quarters, years. And as we continue to add additional products and services, we will continue to grab more and more income.
Now what
Silvergate has some positive developments that should foster continued growth. Earlier this year, Meta Platforms, the company formerly known as Facebook, picked Silvergate to be the exclusive issuer of its forthcoming Diem stablecoin. The Diem pilot is expected to be issued soon, as the company had been waiting for the President's Working Group on Financial Markets to release its report on the risks and opportunities related to stablecoins for guidance. That report came out last week, so look for the Diem pilot launch soon.
Also, in the Q3 earnings report, the company reported that its SEN Leverage lending commitments were $322 million, up from $258 million on June 30 and $35 million a year ago -- more positive news.
