Shares of Silvergate Capital ( SI 0.71% ) rose as much as 6.9% on Wednesday, due to a rosy review from analysts at Morgan Stanley. The stock closed the trading session with a 6.5% gain.
The Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency released a joint statement on Tuesday regarding accelerated reviews of policies for cryptocurrency assets. This so-called "policy sprint" statement is widely seen as a big step toward a more mature regulatory framework for trading and owning cryptocurrency assets.
The three agencies hope to complete a wide-ranging policy collection by the end of 2022. By then, investors and businesses should have more clarity on important issues such as digital-asset safekeeping, crypto-backed loans, and the issuance of new cryptocurrency coins.
Morgan Stanley's Ken Zerbe reiterated his overweight ratings on Silvergate and Signature Bank ( SBNY 1.83% ), underscoring them as the two financial companies with the most to gain from regulatory progress in the cryptocurrency sector.
"We believe that well-crafted regulation will help to promote the adoption of crypto-assets and their related services, which is ultimately a positive for the crypto banks (specifically Silvergate and Signature within our coverage)," Zerba wrote.
Signature Bank took the bullish note in stride, closing Wednesday's trading 1% higher.
Silvergate provides banking services for more than 90 cryptocurrency exchanges. The company reported 1,305 digital-currency customers at the end of the third quarter, up from 1,224 three months earlier and 928 a year ago. Cryptocurrencies are the backbone of Silvergate's operations nowadays, as digital deposits worked out to 96% of the company's total deposits under management.
Yes, this company stands to benefit from regulatory certainty in the cryptocurrency space. I'm not surprised to see share prices jumping when a well-respected analyst firm points out this indisputable fact.
This bank looks like a great cryptocurrency investment for people who don't want to own actual cryptocurrencies directly. The stock has now posted a 523% return in 52 weeks, exceeding a 201% gain for Bitcoin, but lagging behind Ethereum, at 620%. Silvergate manages digital deposits in a wide variety of cryptocurrencies, so you shouldn't expect the stock chart to mirror Bitcoin prices at every turn.