What happened
Shares of Silvergate Capital (SI 12.63%) have skyrocketed today, despite the fact that the crypto bank announced earlier in March that it plans to wind down its operations and liquidate its assets after experiencing a significant deposit run over the last several months. As of 12:07 p.m. ET, the stock was up 63%.
So what
Silvergate is one of three U.S. banks that collapsed earlier this month. The bank ran a real-time payments network that allowed multiple parties on the network to clear and settle U.S. dollar transactions in real time. This helped facilitate crypto trading and crypto-related transactions because the U.S. banking system largely operates on a lag.
However, when the allegations about FTX came to light, Silvergate faced a crisis of confidence because FTX had been a large client. The bank saw intense deposit outflows in the fourth quarter of 2022 and in Q1 of this year, forcing it to sell bonds while they were trading at a meaningful loss, which wiped out a significant portion of shareholder equity. Silvergate also appears to be facing potential regulatory issues.
OTC: SI
Key Data Points
Why shares are moving so intensely today is a bit of a mystery but there are a few possibilities. For one, Silvergate was one of the most heavily shorted stocks on the market prior to announcing it would wind down operations. Perhaps more shorts are covering, which is leading to a short squeeze of sorts.
I've also seen some rumors on social media -- nothing that has been confirmed -- that the company may be able to sell some of its technology assets like its payment network and the Diem stablecoin technology it had purchased from Meta Platforms. This may increase the liquidation scenario for preferred and common shareholders. Earlier this month, analysts at Wedbush had estimated that Silvergate had a liquidation value of $5 per share.
Now what
Ultimately, I don't know what is driving shares of Silvergate so aggressively higher today. I think messing around with a stock like this is going to be extremely risky unless you really feel confident about your liquidation scenario. There is also a chance that regulatory charges in the future impact any liquidation amount, so I'd recommend avoiding the stock.
