Shares of cryptocurrency banking outfit Silvergate Capital (SI -21.05%) were down 5.1% today as of 2:45 p.m. ET. It's been a bad day overall for stocks (the S&P 500 was down 1.4%, the Nasdaq Composite down 2.7%), but cryptos in particular were suffering big sell-offs as investors digested comments from the Federal Reserve.
Specifically, minutes from the Federal Reserve's March 15-16 meeting were released today. Besides a plan to raise interest rates this year, the Fed is planning to gradually reduce the $9 trillion size of its balance sheet. That has markets spooked.
In other words, the Fed is ready to end the days of extreme "easy money" policy as it fights inflation. One Fed governor, Lael Brainard, also spoke today and indicated the pace of monetary policy tightening could be faster than many investors expect. As the economy continues to "normalize" from effects of the pandemic, the Fed has changed from accommodative measures to help make life easier for the economy to inflation-fighting mode.
What does all this rhetoric have to do with Silvergate and the broader cryptocurrency space? As has been the issue since late in 2021, higher interest rates (or the expectation of higher rates) reduces the present value of risk assets. Given that investors have few fundamental tools with which to value a crypto asset, they represent an especially high-risk class of investments that will continue to be very sensitive to rate changes.
That being said, Silvergate is a unique way to play the expansion of digital assets and cryptos in general. Its platform helps facilitate crypto-trading platforms, and it recently acquired assets from the Diem Association -- the stablecoin project that Meta Platforms (META -0.62%) (previously Facebook) was taking the lead on.
Silvergate Capital stock is currently down 37% from its all-time highs reached late in 2021. If you're long-term bullish on digital assets, this stock could be a top way to play the trend.