Silvergate Capital, a crypto-focused bank, believes that the bear market that affects the entire crypto industry is not over. Moreover, their CEO believes the impact could turn unfavorable in the coming quarters, but is still bullish on crypto lending.
In the coming quarters, the crypto industry may still pose challenges for some exchanges and crypto funds. However, at some point, this will be over, and then we’ll have to wait and see what the next catalyst will be. – Alan Lane, CEO and former banker of TradeFi
Given the broader global economic recovery, investors should not compare the current downturn with the previous one. Digital assets have fallen in line with macro trends such as rising interest rates and inflationary pressures.
Despite surging 33% last week, Silvergate’s stock is down 42% of its value this year. The VanEck Digital Transformation ETF (DAPP) is up 15% over the past week while it’s down 67% this year. Global capital markets, especially for stocks deemed riskier, are suffering from rising interest rates and fears of a recession. The Nasdaq Composite Technology Index has lost nearly 25% of its value this year.
Cheap in the long run
Due to the crypto slump, analysts expect a dismal quarter for a variety of crypto companies, from exchanges to miners. However, Silvergate’s second-quarter results defied expectations.
In the second quarter of 2018, US dollar remittances increased by 34%. In addition, net profit increased by 85% year over year, according to The Silvergate Exchange Network (SEN), a fiat platform for the bitcoin market.
Silvergate sticks to what’s most comfortable and avoids FOMO. In this way, he managed to avoid the bear market trap. Lane said they were trying to stay on their toes and not keep up with the current fashion. They focus on what they are good at and solve problems for their users.
According to Canaccord Genuity, risk management was a key factor in Silvergate’s results. In a letter to clients, Joe Vaffy, an equity analyst at Canaccord, identified the key factors. Despite the significant volatility of the current crypto price, the risk management program does not result in a reduction in lending.
Given the growth drivers the company is leveraging, Vafi believes Silvergate’s revenue will triple. His target price is $200 and he values the stock as Buy. On Friday, the company’s shares closed at $86.50 apiece.
Silvergate accepts Bitcoin loans
The recent failure of crypto-related financial organizations did not stop Lane. He still supports accepting bitcoins for his loan program.
We remain very interested in lending against bitcoin. We want to improve this because we think it is one of the best financing we have ever done.- Alan Lane
Recently, Silvergate leveraged the SEN leverage program to provide MicroStrategy with a $205 million term loan. Its purpose is to allow business analytics firms to purchase additional bitcoins.
The recent crypto crash was an excellent stress test for Silvergate, according to Lane. It has demonstrated its ability to withstand the volatility of its lending business model. He added that Silvergate developed the lending platform knowing that it would come with volatility.
Read more – Cardano price analysis
According to Lane, some lenders have difficulty issuing to unsecured customers. But Silvergate demands excessive warranties. Borrowers have three options when market conditions deteriorate. Make additional bitcoin pledges, make full loan payments, or let Silvergate decide if you want to sell some of your bitcoins.
Silvergate has acquired the Diem stablecoin project from Meta Platforms. The project was first presented in June 2019 as Libra.
The assets acquired by Diem certainly provide a good basis for an e-commerce stablecoin. Although the details are scant, Canaccord’s Vafi wrote as much in a letter to investors. “We can’t help but think that demand from payment providers and merchants could become significant over time.”
During the earnings call, Silvergate said the stablecoin is scheduled to launch later this year.