If you want to insulate yourself from the daily gyrations of cryptocurrency but still benefit off the massive phenomenon known as cryptocurrency, then I have the perfect stock for you that trades on the New York public markets.
You don’t even need to open a cold wallet on a crypto exchange to partake.
Silvergate (SI) provides fiat-money services for the world’s biggest cryptocurrency exchanges and financial institutions.
It’s been the personal banker for the digital currency industry for eight years already.
So I just want to remind readers that this isn’t just some flash in the pan type of operation and they possess an official bank charter.
Many people have been coming around to the conclusion that digital asset — this digital currency market is here to stay.
It's not going away.
What does that mean for Silvergate?
Well, first, the stock is up over 600% this year as the price of Bitcoin has exploded to the upside.
Second, SI customers are going to maintain deposits on Silvergate’s platform because of the health of the industry and the services SI provides in order to take advantage of the opportunities they hope to pursue.
It’s satisfying that a stronger balance sheet coincides with a net interest income up 24% compared to last quarter and up 99% compared to the same period last year.
SI’s moat is as strong as ever.
The Silvergate Exchange Network (SEN) is a division that facilitates USD transfer between cryptocurrency exchanges and institutional investors.
And if you look at the SEN activity in the third quarter, its conservative leverage and skyrocketing consumer demand make the stock an ideal buy.
Let’s peel back the layers a little.
One of the great things about the Silvergate Exchange Network, the platform that they have developed, is the network effect and the fact that, as they onboard customers and continue to add products and services, those customers just become stickier.
Since the accumulation of more customers, there is a natural kind of lag between adding a customer and when they get their funding and start using the SEN and other SI products.
Usually, it takes about 1 to 2 quarters to ramp up their product usage and so I do expect the next earnings to be great.
But the real story this past quarter is the continued growth of SEN Leverage.
And in a market that was, you look at the bitcoin price throughout the quarter and you look at the trading volumes which correlate to maintaining a high average deposit, and then start to deploy those deposits in SEN via higher leverage.
Obviously, when the price of crypto is higher than the previous quarters, there is more capital flowing through the SEN.
The cherry on top is the leverage which this bank can supercharge profits — rinse and repeat.
The company currently provides such services to 93 cryptocurrency exchanges and 771 institutional investors such as hedge funds.
Noteworthy clients include Binance.us, Coinbase, Fidelity Digital Assets, PayPal, and CME Group. It also has 360 customers engaged in activities such as crypto mining or building decentralized finance services.
Like any other bank, the company lends out money while only using a portion of its deposit as collateral in a process called fractional reserve banking.
With the rise of the $172.15 billion decentralized finance (DeFi) industry, there are now more opportunities than ever for investors to buy and hold cryptos and earn fixed income with them.
As a result, expect heightened demand for Silvergate’s fiat-crypto services as the crypto and DeFi industries develop.
The stock is a little long in the tooth, but it just demonstrates the belief in the industry and SI has a massive head start over traditional banks who are hesitant about diving deep into the crypto space and funding crypto.
Naturally, that is the caveat about this stock, and banking is not a monopoly which could easily see the JP Morgan’s and Morgan Stanley’s infringe on SI’s turf.
A wave of competition could see net interest income diminished, SEN damaged, and deposits lessened, but I don’t anticipate a full steam ahead type of pivot into crypto from the traditional banking system because their CEOs are not on board.
These CEOs have shown they are willing to go as far as “fintech” but don’t have the stomach for funding crypto.
Old habits die hard.
Use large dips of 10% to add to this unique banking name.
