Shares of the crypto bank Silvergate Capital (SI 52.21%) had risen more than 4% by the final hour of trading today for no obvious reason, although there may be a few factors to explain the move.
Silvergate has had a terrific year in 2021, with its stock up roughly 144%. But over the last month, it has been sold off broadly. Shares are down more than 23% over the last month even after today's rise.
The bank has developed a real-time payments platform called the Silvergate Exchange Network (SEN), which enables two parties on the network to instantly send and clear payments around the clock, 365 days a year. The platform helps facilitate crypto trading between institutional investors and crypto exchanges, because cryptocurrencies also trade around the clock.
Over the past month, growth stocks and cryptocurrencies have also faltered, as the Federal Reserve has indicated that it will taper the bond purchases that it implemented right after the start of the pandemic, and will move to increase interest rates in 2022 to combat high inflation.
Silvergate likely took a hit due to these factors because it is a growth stock and because SEN volume is linked with crypto spot-trading volume, so the stock does seem to move with Bitcoin and the broader crypto market.
Despite the volatility, I am long Silvergate. The bank is one of a few to offer this kind of payments platform, which has enabled it to bring in lots of non-interest-bearing deposits and fee income.
While growth and tech stocks and cryptocurrencies may not fare as well in a rising interest-rate environment, Silvergate's profits will surge because it can deploy its billions of excess deposits into higher-yielding, interest-earning assets.
The bank also has a huge opportunity with stablecoins, which are digital currencies pegged to a currency or commodity. Silvergate earlier this year announced that it will be the exclusive issuer for Meta Platforms' U.S. dollar-pegged Diem stablecoin, so I'm very interested to see how this shapes up as well.