What happened
Shares of Silvergate Capital (SI 2.50%) popped as much as 15% earlier this morning after an analyst initiated coverage of the cryptocurrency bank and assigned a bullish rating.
So what
J.P. Morgan analyst Steven Alexopoulos initiated coverage of Silvergate with an overweight rating. Alexopoulos also set a $300 price target for the stock, which implies roughly 43% upside from the current price. The new price target is the highest set thus far by an analyst.
Silvergate Capital has built a real-time payments system called the Silvergate Exchange Network (SEN), which helps facilitate cryptocurrency trading because it can clear payments between two parties on the network instantly and at any time. This has led to institutional traders and cryptocurrency exchanges flocking to the network because cryptocurrencies trade around the clock. SEN now has more than 1,300 clients on the network.
"Silvergate's status as the pure-play bank of the crypto ecosystem, has led to the creation of a bank not only with superior growth potential, but also that operates with one of the highest quality balance sheets in the industry," Alexopoulos said in a research note.
Image source: Getty Images.
Now what
SEN has enabled Silvergate to bring in billions of deposits that don't require the bank to pay any interest. It has also helped the bank collect fee income by cross-selling traditional banking products to SEN clients and led to new specialized crypto-lending opportunities.
Silvergate trades at a high valuation, but the potential is hard to value right now, especially with the bank getting more and more into the issuance of stablecoins, so I remain very optimistic about the stock.
