What happened
Shares of Silvergate Capital (SI) are soaring today. The stock rose as much as 23.2% at 10:30 a.m. ET, backing down to a still-impressive 16.3% gain at 1 p.m. ET. As an independent bank with a tight focus on the cryptocurrency industry, Silvergate enjoyed two simultaneous but separate tailwinds.
So what
First, President Joe Biden signed an executive order that outlined a "whole-of-government" effort to set up a legal and regulatory framework for trading and ownership of cryptocurrencies. The order contains measures to stabilize the crypto market while lowering the financial risks of digital assets. That's nothing short of stellar news for Silvergate because the bank is mercilessly exposed to the crypto sector's financial risks. Furthermore, every player in the cryptocurrency sector is yearning for a proper legal system. The lack of clarity on issues such as trading limits and taxation adds more fuel to the market's built-in risks and uncertainties, so any baby step in the direction of firm guidance should be seen as a positive change.
Image source: Getty Images.
The executive order alone would probably have propelled Silvergate's stock at least 10% higher today, but that's not the whole story. The banking sector as a whole is also rising today as the surging oil prices backed down while federal interest rates perked up again. Together, these moves point to lower financial risks in the U.S. economy, at least in the short term. Both banks and investors -- and especially traditionally minded investors in bank stocks -- appreciate any indication of lower risks and increased stability.
Now what
Interest rates and oil prices are always on the move, so today's boost from Silvergate's bank-like structure could be temporary. On the other hand, the regulatory review of the crypto market is a much-needed step with long-term implications.
Whatever the final system might look like, it will surely be an improvement over the ramshackle legal oversight the crypto sector has today. Silvergate holds a first-mover advantage as a provider of capital and trading services against fiat currencies for many cryptocurrency exchange platforms. If the company can defend its position as larger banks start to move into the industry, Silvergate could be a financial giant in the making.
