What happened

Shares of the crypto bank Silvergate Capital (SI) traded roughly 15% lower as of 10:29 a.m. ET today after the company reported earnings results for the third quarter of the year.

So what

The headline numbers were very good for Silvergate. The bank generated record diluted earnings per common share of $1.28 on total revenue of more than $89 million. However, those numbers came up short of what analysts had been forecasting for the quarter.

The bank has built a real-time payments system called the Silvergate Exchange Network (SEN), which enables crypto exchanges and institutional investors to transact in real time and therefore trade crypto more efficiently. Clients that use SEN tend to bring large sums of non-interest-bearing deposits to the bank, which Silvergate doesn't pay any interest on.

In the third quarter, SEN volume of $113 billion was the lowest level of activity seen on the network over the last five quarters. Furthermore, average digital asset deposits fell $1.8 billion in the quarter, which is double the decline seen in the second quarter. Interestingly, SEN added a healthy 92 clients to the platform.

"While volumes on the Silvergate Exchange Network (SEN) decreased this quarter compared to the overall industry, we remain confident in the power of our platform and the opportunities for expansion within the network," Silvergate's CEO Alan Lane said in an earnings statement.

Now what

I was surprised to see deposits and SEN activity shrink so much in the quarter, given that the price of Bitcoin was much more stable in the third quarter and that crypto spot trading volume didn't see a huge drop-off relative to the second quarter.

Silvergate has historically been my favorite way to play crypto because it seemingly provides critical infrastructure to the industry and can benefit from a higher interest rate environment.

I plan to hold the stock for the time being but will be looking for more insight from management as to what happened in the quarter on the bank's upcoming earnings call.