What happened
Silvergate Capital (SI 11.11%) stock experienced a few bumps and pops on Hump Day, at one point rising 4% over its closing price Tuesday before settling to a nearly 5% loss. That's down to the usual volatility of cryptocurrency-related assets, but it was also due to an influential investment bank's latest take on the specialty lender's stock.
So what
Sentiment on Silvergate, a bank that operates a trading platform for institutional investors that allows them to trade to and from cryptocurrency exchanges, is frequently influenced by how investors feel about coins and tokens generally. These have generally risen in price over the past few days. Due to that, at least some investors were bullish on crypto-related assets like Silvergate -- hence the peaks in its share price Wednesday.
But this couldn't quite overcome a recommendation downgrade, and from a high-profile company at that. After market hours on Tuesday, Goldman Sachs (GS 1.85%) analyst Will Nance reduced his recommendation on Silvergate stock to neutral from his previous buy. Rubbing salt in the sore, Nance also drastically reduced his price target to $64 per share from the preceding $108.
The Goldman prognosticator's moves come barely over a week after Silvergate reported third-quarter results that missed on both the top and bottom lines. Following this, the stock was hit by a raft of price target cuts.
Nance's core rationale is, as he wrote, that "we believe greater uncertainty about the trajectory of deposit growth, combined with reduced interest rate sensitivity, primarily as a function of the company's hedging program, will likely prevent shares from outperforming."
Now what
In other words, despite its being lumped in as a cryptocurrency stock, Silvergate remains, at its heart, a traditional bank. As such, it is subject to the development of interest rates; as these have been on the rise lately and look to continue this trajectory, demand for the company's loans will probably soften.
