Q4 2022 was not a good time to be a crypto-focused bank. Case in point: Silvergate Capital (SI). In a preliminary update provided last week, the company announced that in the wake of FTX’s swift collapse, users withdrew over $8 billion in deposits during the quarter, making for a 68% sequential drop in digital asset customer deposits.
And to meet the deposit outflows, the company sold $5.2 billion worth of government-backed bonds, incurring a $718 million loss in the process. The company anticipates selling more during Q1, which could lead to further losses of around $300 million.
Moreover, in its attempt to rein in expenses as the crypto industry goes through one of its protracted downturns, the company said it has toned down the workforce by around 40% – roughly 200 employees. The result of all this negative activity was share losses of 43% in one session last week.
However, it’s not all doom and gloom for the company, says BTIG analyst Mark Palmer, who highlights Silvergate’s unique value proposition.
“While SI’s deposit base and its stock price have been battered amidst a crisis in confidence in the cryptocurrency industry, and the report represented another setback, we believe the Silvergate Exchange Network (SEN) will continue to serve as critical infrastructure for industry participants given the significant value they derive from it,” Palmer explained. “In particular, the SEN by providing a fiat on-ramp that operates on an around-the-clock basis and offers availability, capital efficiency, and network effects to institutions that they cannot find elsewhere.”
Furthermore, notes Palmer, while deposits were being withdrawn from the bank during the “most difficult operating environment” in the company’s history, average daily volume on the SEN still rose from $1.2 billion in Q3 to $1.3 billion in Q4, illustrating the network’s “importance to its users.”
All told, Palmer sticks with a Buy rating on SI shares, although his price target is lowered from $51 to $21. Still, there’s upside of a robust 69% from current levels. (To watch Palmer’s track record, click here)
Elsewhere, Silvergate receives mixed reviews from Wall Street’s analyst corps; based on 3 Buys, 5 Holds, and 2 Sells, the stock makes do with a Hold consensus rating. (See Silvergate stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
