What happened
Despite major cryptocurrencies being down over the last 24 hours, several crypto stocks performed well today, all for seemingly different reasons.
Shares of the large crypto exchange Coinbase (COIN +3.25%) are trading roughly 17.4% higher as of 12:35 p.m. ET today. Shares of the crypto bank Silvergate Capital (SI 19.97%) are trading nearly 6% higher, and shares of Bakkt Holdings (BKKT 3.50%) are trading more than 7% higher after being up 17% earlier today.
So what
After a very difficult year for Coinbase amid a crypto winter, the company finally gave shareholders something to cheer about when it announced earlier today that it would be teaming up with BlackRock (BLK +0.00%), the largest asset manager in the world.
With the partnership, Coinbase will provide institutional clients on one of BlackRock's investing platforms (called Aladdin) with the ability to directly buy cryptocurrencies, starting with Bitcoin (BTC +0.35%). Coinbase will enable BlackRock clients to do crypto trading, custody, prime brokerage, and reporting capabilities.
NASDAQ: COIN
Key Data Points
"Our institutional clients are increasingly interested in gaining exposure to digital asset markets and are focused on how to efficiently manage the operational lifecycle of these assets," Joseph Chalom, the global head of strategic ecosystem partnerships at BlackRock, said in a statement.
He added, "This connectivity with Aladdin will allow clients to manage their bitcoin exposures directly in their existing portfolio management and trading workflows for a whole portfolio view of risk across asset classes."
This service will be powered by Coinbase's institutional prime brokerage platform, Coinbase Prime, which now has more than 13,000 institutional clients on it. Coinbase Prime can perform trades on 200 assets, serve as a custodian for more than 300 assets, and perform prime financing, staking, staking infrastructure, data analytics, and reporting.
In other news, BTIG analyst Mark Palmer initiated coverage on Silvergate Capital with a buy rating and a $135 price target. Silvergate has built a real-time trading platform called the Silvergate Exchange Network (SEN) that better facilitates crypto trading between institutional traders and crypto exchanges.
Palmer attributed his rating to Silvergate's "resilient business model." Clients that come to SEN bring lots of zero-cost deposits with them, essentially giving Silvergate a free funding source they can invest in interest-earning assets. So even as rising interest rates hurt the prices of most cryptocurrencies, they have largely been a tailwind for Silvergate, which can earn more yield on its deposits.
OTC: SI
Key Data Points
"We view the company's shares as inexpensive, especially in light of the anticipated launch of its new stablecoin offering [later in 2022], which we expect to serve as an accelerant of its revenue and earnings growth," Palmer wrote in a research note.
Now what
Of these three stocks, my favorite is Silvergate, which I love because the company doesn't hold any cryptocurrencies on its balance sheet but raises lots of deposits due to crypto trading. I am also equally excited about the U.S.-dollar-backed stablecoin Silvergate is planning to launch, which could help drive even more deposits. Silvergate can also hedge inflation due to how it benefits from rising rates.
I also think Coinbase has long-term potential. While the company does need to diversify revenue, it has the size and scale to serve the likes of BlackRock, and this is the type of new business you want to see the company bringing on.
Bakkt has some work to do but could be an attractive stock as well, given its custodial capabilities and how its platform enables more people and businesses to participate in the digital economy.
