There is now a whole group of stocks in the crypto industry that are not cryptocurrencies themselves, but help support the industry -- whether through payments infrastructure, crypto wallets, asset managers, exchanges, or other means.
This group of stocks has in the past had a high correlation to the movement of cryptocurrencies like Bitcoin. Because of this, as cryptocurrencies have struggled in recent months, so has this group of stocks. But for some, I don't think the sell-off is justified. Here are three crypto stocks that I think are screaming buys.
1. Silvergate Capital
Silvergate Capital (SI), a crypto bank with nearly $16 billion in assets, has built a proprietary real-time payments system called the Silvergate Exchange Network (SEN) that better facilitates crypto trading between large U.S. cryptocurrency exchanges and institutional traders.
Because cryptocurrencies trade nonstop and the U.S. doesn't operate on a real-time payments system, having the ability to instantly clear and settle transactions makes trading more efficient. Silvergate has a first-mover advantage in this space and has now onboarded more than 1,500 clients to SEN.
I thought the bank's first-quarter results were particularly strong, given that while crypto trading volume and SEN volume had a weak quarter, the bank still onboarded 122 clients. This shows that even when interest in crypto is down, there is still long-term interest in what SEN is offering.
Furthermore, clients onboarding to SEN bring Silvergate lots of deposits that the bank doesn't pay any interest on, which it can make money on by deploying into bonds or loans. That's a huge advantage over other banks that pay interest on their deposits. It also makes Silvergate a tremendous beneficiary from rising interest rates because the bank can deploy these zero-cost deposits earning very little yield into higher-yielding assets.
At 29 times forward earnings, Silvergate's valuation might look expensive, especially in this current market, but rising interest rates are going to significantly grow the bank's profits. Also, Silvergate is working on issuing a dollar-backed stablecoin for commerce and remittance, which would make it the first regulated bank to do so.
I don't believe investors are factoring in how huge this initiative could be. There's certainly no guarantee of success, but it could be a game-changer for the stock.
2. Signature Bank
Signature Bank (SBNY), with $122 billion in assets, is much bigger than Silvergate but is similar in the sense that it also runs a real-time payments system, called Signet, to better facilitate crypto trading.
While Signet started after SEN, it seems to be catching up to Silvergate and is similar in size. It added 160 new clients in the quarter and has a total of 1,202 on its network, according to Barrons.
Signature has $29.43 billion in deposits from its digital asset customers, although it's a bit unclear how much of that is specifically due to Signet. Signature also reported that it doubled the number of major exchanges using the bank as their primary bank from four to eight in the quarter.
Signature also has a strong lending operation into which it can deploy all of its excess deposits, including venture banking, fund banking, commercial lending, specialty finance, multifamily and specialty mortgage lending, and more. The bank has generated impressive returns and is extremely efficient operationally. Like Silvergate, it will also benefit tremendously from rate hikes and trades below 12 times forward earnings.
3. Customers Bancorp
The $19-billion-asset Customers Bancorp (CUBI -0.06%) is the newest player to develop an instant-payments system to support digital asset clients trading cryptocurrencies, as well as a variety of clients pursuing other goals.
It's easy to assume Customers Bancorp is late to the party. But that's really not the case, because as more of the traditional financial system wades into the crypto world, there will need to be more than one or two platforms providing payments infrastructure. This is a massive industry; many exchanges and clients will be on more than one of these bank payment networks.
The rollout of the Customers Bank Instant Token (CBIT) seems to be going well so far. The bank has onboarded 100 total customers to start to build the network effect and had $2.3 billion of deposits from these customers as of April 15.
Customers Bancorp also runs a number of other diverse lending operations including specialty digital lending to small- and medium-size businesses, banking as a service, venture capital banking, consumer lending, mortgage banking, and much more, giving it much broader capabilities than most banks its size.
With Customers Bancorp stock currently trading around six times forward earnings and just 117% to its tangible book value, which is essentially a bank's net worth, I see it as an absolute steal right now.