Silvergate Capital (NYSE:SI) isn't exactly a household name in banking, but it has emerged as the go-to for the banking needs of the rapidly growing cryptocurrency industry. With a client list that reads like a "who's who" of major cryptocurrency exchanges, hedge funds, and other major industry players, Silvergate could be a major beneficiary if cryptocurrency adoption gains momentum.
Two of our banking experts recently decided to take a look at how Silvergate's business works, and whether it could be an interesting investment opportunity. In this Nov. 30 Fool Livevideo clip, Fool.com contributor Matt Frankel, CFP, andIndustry Focus host Jason Moser take a deep dive into what Silvergate does, how it makes its money, and what investors should keep in mind about this unique bank stock.
Jason Moser: Question from a listener recently, Matt. Ben on Twitter (NYSE: TWTR) asks, "Hi Jason, any chance for an industry focus episode on Silvergate Capital. It's a bank that has a platform for cryptocurrency called the Silvergate Exchange Network, the SEN, with a lot of institutional transactions. Thanks. You and Matt make financial discussion interesting." I will say, he concluded that, "You and Matt make financial discussion interesting" with the laugh face, with the little tears of laughter. I mean, maybe that's an LOL. It was a very thoughtful sentiment and it sounds like we're at least doing our job well enough. Let's keep on doing what we're doing, Matt. But Ben, really thank you for the question. I've never really dug into Silvergate before. I'd heard of it. Very small bank, of course. But not too small. I mean, it's just small-cap bank. But an interesting one nonetheless. Looking a little bit more into the Silvergate Exchange Network, particularly, in this age of digital currency, it seems like this is a bank that might become a little bit more relevant as time goes on. What do you think about Silvergate, Matt?
Matt Frankel: Yes. Like you said, they're not a very big bank. They're big enough that we're allowed to talk about them, but not much more than that.
Jason Moser: Around a $600 million market cap, something like that.
Matt Frankel: The Silvergate Exchange Network, which is the most interesting part of the business right now. I was reading that it's a intermediary that it facilitates the transfer of money from one cryptocurrency player to another. That sounded interesting enough. But then I start to read their list of customers and Coinbase is one of their customers, Gemini is one of their customers. The use case is, that normally if a customer buys Bitcoin in US dollars, because when you buy bitcoin, you use money. The exchange would have to transfer that somewhere, then it takes a couple of days. Then it will get transferred to another exchange to buy crypto or something like that. What the Silvergate Exchange does is, it facilitates this 24-7 real-time money transfers between cryptocurrency exchanges and major hedge funds and other digital currency players. There's mining operations that are customers of the bank. It's an interesting case. They have over two billion dollars of cryptocurrency deposits. Most of their deposits are in cryptocurrency, not US dollars, which is an interesting case.
Jason Moser: You square that up to squares balance sheet with 50 million in bitcoin. I mean, that can give you at least some context there as to how big of a role crypto is playing for a company like this.
Matt Frankel: This wasn't always a crypto bank. On their website, it says, they've been profitable for 21 years. So they've been around for at least that long. Their CEO has been there since 2008. They pivoted to crypto in 2013, good timing. There were first to the party it sounds like.
Jason Moser: Perfect timing.
Matt Frankel: Coinbase, Gemini, those are some of the biggest players in the industry that are their customers that they use for their money transfers. It's an interesting industry right now. It's worth mentioning that as a bank, there are two sides to their business. There's deposits and lending. Pretty much the exchange network and the crypto deposits. That's the deposit side. On the lending side, they're mortgage lender. That's interesting. It looks, most of their assets are either mortgage-backed securities or what are called warehouse mortgages, meaning lines of credit to mortgage brokers. They are mortgage lenders. Their loan portfolio is actually pretty high-quality. I saw that their non-performing loan rate is 0.16 percent right now, which is really low if you look at some of the other banks right now.
Jason Moser: That's exceptional.
Matt Frankel: It's interesting. That's how they make their money; a combination of income from their lending portfolio, which is mostly mortgages of a commercial nature. Commercial mortgages and they make fee income from their cryptocurrency activity. An interesting bank. This is not investing in Bank of America (NYSE: BAC) or even one of the smaller more tech-focused banks like we've talked about on the show. It's a play on the cryptocurrency industry. The more money that flows through cryptocurrency exchanges, the more they're going to make.
Jason Moser: I think you summed it up nicely there. I mean, if you look at the way the stock has performed here year-to-date, it was more or less tracking the market up toward October. But starting in October, shortly after they had released their quarterly results, the stock just went, as they like to say, parabolic, man. Just went straight up. Year-to-date stock has returned about 125 percent versus the markets, close to 12 or something. Clearly, Silvergate is having a very good year. I can understand at least and when you're looking through the transcript from the most recent quarter, customers completed over $36 billion in Silvergate Exchange Network transfers during the third quarter alone. Now that exceeded $32 billion that was done all throughout 2019 together. Clearly, Silvergate Exchange Network is gaining a lot of traction and maybe that's the enthusiasm there. I can certainly understand it based on your description of how the company makes its money. I will reiterate, this is a small bank, a 600 dollar million market cap round about. Also worth noting that it has a very low float. There's a low number of shares outstanding, just under 19 million, it looks like. Half of that, essentially, is the float on the open market. My point is anytime you see a small cap bank like that with a low float, you are typically going to see some hefty bid and ask spreads, and you're going to see some pretty volatile movement from time-to-time. It's all to say if it's a bank that you're interested in, this is the kind of bank where I think a limit order probably makes a lot more sense if you're interested in owning it.
Matt Frankel: Yeah, for sure. I would tip toe into this one if you were interested in it.
Jason Moser: Yeah.
Matt Frankel: I prefer it to owning actual Bitcoin as an investment.
Jason Moser: Yeah, I was wondering about that actually.
Matt Frankel: Like that mortgage side of the business should provide nice steady income and then the fee income side of the business is the growth avenue. It's like a nice combination of steady, predictable, recurring revenue and growth potential. But like I said, I like it better than investing in actual cryptocurrency, but like I said, this is not Bank of America or JPMorgan Chase (NYSE: JPM), so I'd be tip toeing cautiously.
See the original post:
This Cryptocurrency-Focused Bank Could Be Worth a Look - The Motley Fool
- MIT-educated brothers accused of stealing $25 million in cryptocurrency in 12 seconds in Ethereum blockchain scheme - CBS News - May 15th, 2024 [May 15th, 2024]
- DOJ Charges 2 Brothers With Scheme to Steal Cryptocurrency - PYMNTS.com - May 15th, 2024 [May 15th, 2024]
- US charges two brothers with novel $25 million cryptocurrency heist - AOL - May 15th, 2024 [May 15th, 2024]
- MIT-educated brothers allegedly stole $25M in crypto in just 12 seconds - New York Post - May 15th, 2024 [May 15th, 2024]
- DOJ charges 2 brothers tied to $25M attack on MEV bots last year - Blockworks - May 15th, 2024 [May 15th, 2024]
- Brothers indicted for 'first-of-its-kind' cryptocurrency heist - Courthouse News Service - May 15th, 2024 [May 15th, 2024]
- The Ultimate Cryptocurrency to Buy With $1,000 - The Motley Fool - May 15th, 2024 [May 15th, 2024]
- Sonne Finance developers offer bounty to hacker behind $20 million crypto theft - The Record from Recorded Future News - May 15th, 2024 [May 15th, 2024]
- Brothers indicted over $25 million Ethereum cryptocurrency theft: DOJ - FOX 10 News Phoenix - May 15th, 2024 [May 15th, 2024]
- Cryptocurrency Price on May 15: Bitcoin dips below $62k ahead of US inflation report today - The Economic Times - May 15th, 2024 [May 15th, 2024]
- $100 Trillion Market Cap For Cryptocurrency Will Be a Reality: Analyst - Watcher Guru - May 15th, 2024 [May 15th, 2024]
- This Week in Web3: Crypto Payment Rails and Regulatory Clarity - PYMNTS.com - May 15th, 2024 [May 15th, 2024]
- Unveiling Fourprime Token Where Innovation Meets Cryptocurrency Revolution - AccessWire - May 15th, 2024 [May 15th, 2024]
- Binance: A Comprehensive Overview of The World's Leading Cryptocurrency Exchange - Blockchain.News - May 15th, 2024 [May 15th, 2024]
- Cryptocurrency Likely to Resume Rally: 4 Stocks Set to Gain - Yahoo Finance - May 15th, 2024 [May 15th, 2024]
- Cryptocurrency: Mass Institutional Adoption Underway, with Bitcoin, BlockDAG Network, and Ethereum Value Surge - Yahoo Finance - May 15th, 2024 [May 15th, 2024]
- The Ultimate Cryptocurrency to Buy With $1,000 - sharewise - May 15th, 2024 [May 15th, 2024]
- Two Brothers Arrested for Attacking Ethereum Blockchain And Stealing $25M In Cryptocurrency - Eurasia Review - May 15th, 2024 [May 15th, 2024]
- 3 Potentially Brutal Cryptocurrency Risks That Most Investors Simply Aren't Ready For - The Motley Fool - May 15th, 2024 [May 15th, 2024]
- Crypto customer scammed in alleged HK$1 million hell money scheme in Hong Kong - South China Morning Post - May 15th, 2024 [May 15th, 2024]
- Brothers accused of stealing $25 million in cryptocurrency in 12 seconds - MSN - May 15th, 2024 [May 15th, 2024]
- Solana (SOL) Price Prediction 2024,2025 And 2030 Forbes Advisor INDIA - Forbes - May 15th, 2024 [May 15th, 2024]
- Cryptocurrency Warning: Avoid These 3 Failing Names - InvestorPlace - May 15th, 2024 [May 15th, 2024]
- Top 3 Cryptocurrency to Invest Now According to Reddit: Bitcoin, Ethereum, Furrever Token - Yahoo Finance - May 15th, 2024 [May 15th, 2024]
- Two Brothers Educated In Prestigious University Stole Cryptocurrency Worth $25 Million In 12 Seconds, Feds Allege - Daily Caller - May 15th, 2024 [May 15th, 2024]
- 6 Altcoins To Consider Buying For The Next Bull Run In 2024 - Forbes - May 15th, 2024 [May 15th, 2024]
- US charges two brothers with novel $25 million cryptocurrency heist - ThePrint - May 15th, 2024 [May 15th, 2024]
- Bitcoin Just Did Something It Has Only Done 3 Times Before. The Cryptocurrency Usually Does This Next. - The Motley Fool - April 25th, 2024 [April 25th, 2024]
- Cryptocurrency Market News: Bitcoin Halving Steadies Price, Network Transaction Fees Spike - Investopedia - April 25th, 2024 [April 25th, 2024]
- Bitcoin Just Did Something It Has Only Done 3 Times Before. The Cryptocurrency Usually Does This Next. - Yahoo Finance - April 25th, 2024 [April 25th, 2024]
- 10 Best Cryptocurrencies To Buy In April 2024 - Forbes - April 25th, 2024 [April 25th, 2024]
- Movement Labs raises $38 million to build layer 2 blockchain on Ethereum with Facebook tech - Fortune - April 25th, 2024 [April 25th, 2024]
- Cardano Founder Charles Hoskinson Reiterates Core Purpose of Cryptocurrency Here's What You Need to Know - Cryptonews - April 25th, 2024 [April 25th, 2024]
- From Cryptocurrency to Cannabis: 7 Penny Stocks on the Rise - InvestorPlace - April 25th, 2024 [April 25th, 2024]
- South Carolina: Cryptocurrency scams on the rise in Upstate - WYFF4 Greenville - April 25th, 2024 [April 25th, 2024]
- Binance BNB Memecoin Traders Join 100X New Cryptocurrency On Uniswap - Yahoo Finance - April 25th, 2024 [April 25th, 2024]
- The Future of Real Estate: Investing in Tokenized Properties with Cryptocurrency - ForexLive - April 25th, 2024 [April 25th, 2024]
- The Current Position with Cryptocurrency Regulation in the United States - Latest Cryptocurrency Prices & Articles - April 25th, 2024 [April 25th, 2024]
- 3 Must-Know Facts About Ethereum, Before You Buy the Cryptocurrency - The Motley Fool - April 25th, 2024 [April 25th, 2024]
- Cryptocurrency: 3 Meme Coins To Watch In May for Exponential Gains - Watcher Guru - April 25th, 2024 [April 25th, 2024]
- EOS Falls 14% In Bearish Trade By Investing.com - Investing.com - April 25th, 2024 [April 25th, 2024]
- The UItimate Cryptocurrency to Buy With $1,000 Today - The Motley Fool - April 25th, 2024 [April 25th, 2024]
- Romance scams involving AI images, cryptocurrency on the rise in Chicago - CBS Chicago - April 25th, 2024 [April 25th, 2024]
- Bitcoin Halving Event Of 2024: The Aftermath Forbes Advisor Australia - Forbes - April 25th, 2024 [April 25th, 2024]
- Cryptocurrency Ethereum Classic Down More Than 4% Within 24 hours - Benzinga - April 25th, 2024 [April 25th, 2024]
- Cryptocurrency: Top 3 Coins To Buy Now For 10X Gains In 2024 - Watcher Guru - April 25th, 2024 [April 25th, 2024]
- What's going to be different with the halving of Bitcoin this time? - Euronews - April 25th, 2024 [April 25th, 2024]
- Cryptocurrency OKB Decreases More Than 3% Within 24 hours - Benzinga - April 25th, 2024 [April 25th, 2024]
- Cryptocurrency OKB Decreases More Than 3% Within 24 hours - Investing.com UK - April 25th, 2024 [April 25th, 2024]
- Cryptocurrency Kaspa Falls More Than 3% In 24 hours - Benzinga - April 25th, 2024 [April 25th, 2024]
- BRICS To Replace US Dollar With Cryptocurrency for Trade - Watcher Guru - April 25th, 2024 [April 25th, 2024]
- Bitcoin Halving Sparks Unprecedented Transformation in Cryptocurrency Market - West Island Blog - April 25th, 2024 [April 25th, 2024]
- Influential Analyst on YouTube Shares High-Potential Cryptocurrency That Could Beat Shiba Inu (SHIB) and Dogecoin (DOGE) Gains in This Bull Run -... - April 25th, 2024 [April 25th, 2024]
- Cryptocurrency Uniswap Up More Than 3% In 24 hours By Benzinga - Investing.com UK - April 25th, 2024 [April 25th, 2024]
- Bitcoin is halving again what does that mean for the cryptocurrency and the market? - The Conversation - April 25th, 2024 [April 25th, 2024]
- Cryptocurrency Ethereum Classic Down More Than 4% Within 24 hours By Benzinga - Investing.com UK - April 25th, 2024 [April 25th, 2024]
- RackNerd Expands Cryptocurrency Payment Options with Coinify Integration, Accepting Over 30 Cryptocurrencies - PR Web - April 25th, 2024 [April 25th, 2024]
- What Meltdown? Crypto Comes Roaring Back in the Philippines. - The New York Times - March 18th, 2024 [March 18th, 2024]
- Chinas cryptocurrency investors made gains of US$1 billion in 2023 - South China Morning Post - March 18th, 2024 [March 18th, 2024]
- 1 Super Cryptocurrency Could Soar to $200,000 by 2025, According to a Wall Street Analyst - The Motley Fool - March 18th, 2024 [March 18th, 2024]
- Cryptocurrency Miners Need to Report their Energy Use - Earthjustice - March 18th, 2024 [March 18th, 2024]
- Understanding the Fundamental Differences Between Cryptocurrency and Fiat Currency - FinSMEs - March 18th, 2024 [March 18th, 2024]
- SOL Flips BNB, Becoming 4th Largest Cryptocurrency as Ethereum Becomes Next Target - CCN.com - March 18th, 2024 [March 18th, 2024]
- Prosecutors seek from 40 to 50 years in prison for Sam Bankman-Fried for cryptocurrency fraud - The Associated Press - March 18th, 2024 [March 18th, 2024]
- Cryptocurrency: 3 Meme Coins That Could 15x This Bull Season - Watcher Guru - March 18th, 2024 [March 18th, 2024]
- Can the Bitcoin surge push India to overcome its cryptocurrency hurdles? - The National - March 18th, 2024 [March 18th, 2024]
- The Ultimate Cryptocurrency to Buy With $1,000 Today - Yahoo Finance - March 18th, 2024 [March 18th, 2024]
- Cryptocurrency laundryman gets hung out to dry - The Register - March 18th, 2024 [March 18th, 2024]
- Bitcoin price predictions: How much more could it rise in 2024? - Euronews - March 18th, 2024 [March 18th, 2024]
- Shiba Inu Is Skyrocketing: Is It a Top Cryptocurrency to Buy Right Now? - Yahoo Finance - March 18th, 2024 [March 18th, 2024]
- 1 Top Cryptocurrency to Buy Before It Soars 1,328%, According to Cathie Wood of Ark Invest - The Motley Fool - March 18th, 2024 [March 18th, 2024]
- The other Bitcoin rally: How scams are cashing in on the cryptocurrency fever - EL PAS USA - March 18th, 2024 [March 18th, 2024]
- Kalshi Prediction Market To Introduce Cryptocurrency Betting (Payouts In USD) - Blockchain Magazine - March 18th, 2024 [March 18th, 2024]
- Bitcoin Hits Record $72,000, Emboldening Crypto Industry - The New York Times - March 18th, 2024 [March 18th, 2024]
- Solana (SOL) Flips BNB to Become 4th Largest Cryptocurrency - Watcher Guru - March 18th, 2024 [March 18th, 2024]
- Predicting which Cryptocurrency will Boom in 2024 - ForexLive - March 18th, 2024 [March 18th, 2024]
- Nigeria's Cryptocurrency Crackdown Will Have Consequences, Experts Say - Voice of America - VOA News - March 18th, 2024 [March 18th, 2024]
- Crypto ETN providers head for UK but urge rethink on retail ban - Financial Times - March 18th, 2024 [March 18th, 2024]
- Trump Signals Positive Stance on Cryptocurrency If Elected to the White House - Yahoo Finance - March 18th, 2024 [March 18th, 2024]
- Bitcoin Bulls vs. Bubble Bears: A Cryptocurrency Clash - Crypto Times - March 18th, 2024 [March 18th, 2024]