What happened
Shares of the crypto bank Silvergate Capital (SI 3.12%) traded roughly 5.5% higher as of 9:35 a.m. ET today after receiving a bullish rating from an analyst at Bank of America. The stock had given up most of those gains and traded about 1% higher as of 10:13 a.m. ET.
So what
Bank of America analyst Brandon Berman initiated a buy rating of Silvergate Capital and a $200 price target, implying about 45% upside from its current levels.
Silvergate Capital has built a real-time payments system that better facilitates cryptocurrency trading because parties on the network can send and clear transactions instantly at any time, whereas most of the U.S. payments system doesn't operate in real time. Cryptocurrencies trade around the clock. Silvergate also earlier this year acquired the assets behind Meta Platform's Diem and U.S. dollar stablecoin and is planning to eventually roll out a stablecoin later this year.
Berman likes Silvergate for several reasons. For one, he said the company "is one of the best-positioned companies to benefit from the expanding use of stablecoin for payment, commerce, and remittance." He also thinks that Silvergate as a regulated bank is better positioned to operate in the uncertain regulatory environment. Finally, Berman believes Silvergate can grow its balance sheet much, much faster than atraditional bank.
Now what
I agree with Berman's prognosis and am a strong believer in Silvergate's stock. The other great thing about Silvergate is that with so much excess deposits and cash on its balance sheet, it is incredibly tethered to a rising-rate environment.
According to its annual report, a 1% move in the Federal Reserve's overnight lending rate would result in the bank's net interest income rising by nearly 60% over the next year. After raising the federal funds rate earlier this month, the Fed is projecting to raise its benchmark rate at its next six meetings.