What happened
Shares of crypto bank Silvergate Capital (SI 11.11%) continued their meteoric rise this week as major investors disclose a position in the company. Shares were up 29.6% at this peak and closed trading up 28.57%.
So what
Recent SEC filings from banks and hedge funds have shown a number of large holders of Silvergate stock. Yesterday, Ken Griffin's disclosure of a 5.1% stake through Citadel Securities had shares moving higher, and we now know that Susquehanna Securities, State Street, Blackrock, and even George Soros' fund have stakes in the company.
There has been extremely high short interest in Silvergate stock because of the company's troubles after FTX's collapse and potential run on the bank. Those short positions need to be closed though, and when a stock starts moving higher, it can cause a rush to close out short positions (buy the stock), which pushes the stock even higher. This is called a short squeeze. That's exactly what I see happening this week.
Now what
Big investors owning a stock can be a positive sign, but in the case of Silvergate, these are very small positions for these funds and may be hedged in other ways. I would be very careful buying a stock after a short squeeze because the fundamentals have changed at all in the last few days.
Regulators are still coming after crypto, there's a lot of risk on Silvergate's balance sheet, and a run on the bank is still possible. That's why I'm still staying out of the stock today.
