What happened
Crypto bank Silvergate Capital (SI 9.76%) reported its fourth-quarter earnings before the market opened on Tuesday, and investors liked what they saw. Shares were up by as much as 38.6% in early trading, but that faded as the morning progressed. Shares were still up by 5.5% at 12:27 p.m. ET.
So what
For the quarter, the bank booked a net loss of $1.0 billion, or $33.16 per share, and its average digital asset deposits were $7.3 billion, down sharply from $12.0 billion a quarter earlier.
The concern for Silvergate Capital over the last few months was that a run on the bank would result in its outright collapse. That hasn't happened, but as of the end of the quarter, its total deposits were down to $3.8 billion. Management also said it had sold $5.2 billion in debt securities at a loss of $718 million during the quarter just to maintain liquidity.
Now what
Any moves Silvergate stock makes right now will be based on little more than speculation. The company just reported an enormous loss, and shareholder equity dropped by more than half to end the fourth quarter at just $603.2 million. As losses mount, that figure could go lower.
I don't think Silvergate Capital has shown the ability to manage risk or build a sustainable business out of onboarding customers to crypto. It may be able to survive for a while on fees from its exchange-traded products, but this isn't a business worth investing in now.
