Wednesday, February 9, 2022

A Small Cap Equity holding: Silvergate Capital (SI, $117.03): “The golden gate to the future of finance” By: Matthew O’Brien, AIM Student at Marquette University

 Silvergate Capital (SI, $117.03): “The golden gate to the future of finance”

By: Matthew O’Brien, AIM Student at Marquette University

Disclosure: The AIM Small-Cap Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it, and I have no business relationship with any company whose stock is mentioned in this article.


Silvergate Capital, Inc. (NYSE:SI) provides financial infrastructure solutions and services to participants of the digital currency industry. They operate through commercial and institutional clients and operate in the United States

  • Cryptocurrencies increased in relevance allows Silvergate Capital to maximize its potential.
  • Silvergate’s proprietary “Silvergate Exchange Network” (SEN) contains no fees which is beneficial to asset managers and hedge funds placing large orders.
  • Silvergate Capital’s stock moves with crypto, placing inherent risk on the asset as cryptocurrency is volatile.

Key points: Silvergate Capital is well positioned for tremendous growth over the next 10-15 years. Cryptocurrency, specifically blockchain technology, has shown many advantages over traditional finance, and gen Z and millennials are ready to adopt its wide scale usage. Silvergate owns a network called the “Silvergate Exchange Network” which allows fee free usage for all clients while allowing users of the network to exchange 24/7. One downside with cryptocurrency are its expenses that come with its use, and Silvergate mitigates this downside.

Silvergate Capital is showing its commitment to cryptocurrency adoption through acquisitions such as Diem, a cryptocurrency venture backed by Mark Zuckerberg and Meta Platforms. Silvergate Capital purchased Diem for $200 million and is looking to partner with them to create a USD stablecoin to allow for a better means of payment and transfers for SEN users. Federal lawmakers have expressed concern over its adoption as it may pose a threat to global financial stability.

Silvergate Capital is constantly finding ways to increase cost efficiency while maximizing shareholder value. They operate as both a services and solutions firm, meaning they take place in traditional finance activities such as cash management while also owning efficient networks that have proven to be better than traditional transfers.

What has the stock done lately? The stock is down only 5% in the past month compared to many high growth flyers that have seen much more significant losses. SI reached a low of $93.26 and has since rebounded 25.5% to $117. Cryptocurrency volatility correlates to SI volatility.

Past Year Performance: In the past year, the stock is down 18.69% and it’s down 21.43% year to date. Yes, this is a whopping figure, but as I they say, with risk comes reward. SI is currently trading at $117 after reaching a peak of $222.13 on 11/3/2021. The stock moves with cryptocurrency which has shown periods of volatility over the past year but is widely believed and capable to be transformed into a feasible means of finance.

1 Year Stock Chart vs. Benchmark from FactSet here

Source: FactSet

My Takeaway

The growing usage of crypto currency among notable companies such as Tesla, Microsoft, PayPal, etc., are signs that crypto can become the primary means of payment. I think that for the next 1-2 years this stock may not see excessively great returns, but I think with the increased relevance of cryptocurrency, it will only take time until SI becomes a leading bank in the fintech industry.

1 Month Stock Chart from FactSet here

Source: FactSet