‘Bank’ Stock Looks to Be a Better Way to Play Cryptocurrencies

Silvergate Capital Corp (NYSE:SI) shares have soared more than 92% since Capital Ideas wrote about the company about 16 months ago

Capital Ideas Media | May 5, 2022 | SmallCapPower: Investors/speculators looking for exposure to cryptocurrencies, such as Bitcoin, might want to consider shares of Silvergate Capital Corp. (NYSE:SI) instead.

(Originally published on Capital Ideas Media on December 22, 2020)

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Silvergate operates much like a bank but 95% of its deposits are digital currencies. The company’s depositors include 64 crypto exchanges, such as Coinbase, Genesis Kraken, and Bitstamp, and also include nearly 600 institutional investors as well as other participants such as miners, stablecoin issuers, and blockchain platform operators.

[Editor’s Note: Shares of Silvergate Capital have soared more than 92% since Capital Ideas wrote about the company about 16 months ago.]

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Silvergate Capital doesn’t own the cryptocurrencies but also doesn’t pay interest on the deposits. The company provides traditional commercial loans but also uses the digital currencies as collateral to issue US dollar loans to its clients.

Silvergate Capital has attracted numerous customers because of its Silvergate Exchange Network (SEN), which facilitates 24-7, real-time money transfers between cryptocurrency exchanges and major hedge funds and other digital currency participants. Since all of its customers belong to SEN they can all transact with one another via the network, doing so with less friction, no counterparty risk and more liquidity.

Silvergate does not trade cryptocurrencies itself; it merely facilitates the exchange of dollars among the companies and institutions that do.

Like any other bank, Silvergate makes a lot of its money from fees, such as wire transfers, ACH transfers, foreign exchange transfer. And its fee income has been growing:

In all likelihood, some bigger banks will move into this space but, for now, Silvergate Capital has a first-mover advantage in addition to the network it has built.

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