What happened
Shares of the cryptocurrency bank Silvergate Capital (SI) rose nearly 6% today on a good day for the broader market and after the company reportedly issued one of its niche Bitcoin-collateralized loans in a large amount.
So what
Silvergate is a bank, but the company is more known for its real-time payments system called the Silvergate Exchange Network (SEN), which enables multiple parties on the network to clear and settle transactions in real time around the clock. The platform is helpful for crypto exchanges and institutional traders interested in trading cryptocurrencies, because the U.S. payments system doesn't operate in real time.
Silvergate also uses its payments system to issue loans and lines of credit, called SEN Leverage, that are collateralized by Bitcoin. Earlier today, it issued a $205 million term loan to a subsidiary of the business intelligence company MicroStrategy (MSTR -2.82%), which also buys and holds Bitcoin.
Image source: Getty Images.
"The SEN Leverage loan gives us an opportunity to further our position as the leading public company investor in Bitcoin," MicroStrategy CEO Michael Saylor said in a statement. "Using the capital from the loan, we've effectively turned our Bitcoin into productive collateral, which allows us to further execute against our business strategy."
The loan is of fairly significant size when you consider that at the end of 2021, total SEN Leverage loan balances were just above $570 million.
Now what
Growing SEN Leverage balances are certainly good news for Silvergate. But the rise in the stock today could also have been attributed to broader market sentiment and the fact that Silvergate should perform quite well in the rising interest-rate environment, which formally kicked off this month when the Federal Reserve hiked its benchmark overnight lending rate.
