Silvergate Capital (SI +0.31%) stock fell 12% in Thursday's trading as bearish pressures impacted the broader cryptocurrency market. As of 4 p.m. ET, Bitcoin (BTC 0.02%) had lost roughly 6.6% over the previous 24 hours, while Ethereum's (ETH 0.19%) Ether token was down roughly 7.5%.
Silvergate Capital provides banking services for cryptocurrency exchanges, and its pricing movements historically have had a high correlation with the valuation trends for Bitcoin and crypto tokens broadly. After its double-digit percentage pullback in a single trading session, should investors be pouncing on this fintech stock?
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Silvergate is a pick-and-shovel play on the cryptocurrency market
Investors need to put the pullback for the company's share price in context.
With help from bullish momentum for the overall crypto market, the company has seen its share price double across 2021's trading, despite the fact that it engaged in substantial secondary stock offerings in order to fund operations and pave the way for potential acquisitions and new growth initiatives. Silvergate now has a market capitalization of roughly $3.9 billion and trades at approximately 52 times this year's expected earnings and 22.5 times expected sales.
If cryptocurrency adoption continues to increase, that will almost certainly create more demand for the type of services Silvergate Capital provides. It has established itself as a leading provider of banking services for cryptocurrency exchanges, and a growing pool of increasingly engaged crypto token traders could continue to boost the company's business and power gains for its share price. The crypto-fintech specialist is also digitally minting Meta Platform's stablecoin, Diem, and providing related banking services for the token. Its connection with the tech giant could prove a valuable vote of confidence.
For risk-tolerant investors, Silvergate Capital stock could be a worthwhile vehicle for investing in the growth of the crypto space. However, keep in mind that the stock will likely continue to fall if the crypto market enters a more prolonged bearish cycle.
