What happened

Shares of the crypto bank Silvergate Capital (SI) had jumped roughly 11% in premarket trading as of 9:03 a.m. ET Tuesday after the company reported earnings for the second quarter of the year.

So what

Silvergate reported diluted earnings per share of $1.13 on total revenue of nearly $80 million for the quarter, easily topping analyst estimates.

The bank has developed a proprietary real-time payments network, called the Silvergate Exchange Network (SEN), that better facilitates crypto trading between crypto exchanges and institutional investors. 

During the quarter, SEN added 82 customers and now has a total of 1,585 customers on the network. Total transaction volume on SEN in Q2 was $191 billion, up about 35% from the first quarter and down more than 20% year over year. Interestingly, SEN volume jumped 35%, despite the fact that Bitcoin and Ethereum spot trading volume only grew 6%.

Average digital currency deposits fell from $14.7 billion in the first quarter to $13.8 billion at the end of the second quarter. SEN Leverage, Silvergate's U.S. dollar line of credit collateralized by Bitcoin, saw total balances increase by nearly $300 million to $1.37 billion. More importantly, the bank didn't have any forced liquidations or losses in the quarter despite the steep decline in the price of Bitcoin.

Now what

This was a big quarter for Silvergate to see how the bank fared during such a tough time for Bitcoin and cryptocurrencies. But things held up well, with SEN growing customers and seeing healthy volume across the network relative to crypto spot trading volume.

The advantage of being a bank is that Silvergate could take all of the deposits it has gathered thanks to SEN and invest them at higher interest rates, which is why profits surged in the quarter.

Obviously, you don't want to see average deposits fall but it's not completely unexpected given what has happened in the crypto market. I will be curious to hear management's comments later today, but overall think this was a strong quarter during a very difficult backdrop in the second quarter.