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