Why Silvergate Capital Shares Are Rising Today

What happened

Crypto bank stocks Silvergate Capital ( IF 1.35% ) traded about 5.5% higher at 9:35 a.m. ET today after receiving a bullish analyst rating from Bank of America. The stock had given up most of those gains and was trading about 1% higher at 10:13 a.m. ET.

So what

Bank of America analyst Brandon Berman has issued a buy rating for Silvergate Capital and a price target of $200, implying a roughly 45% upside from its current levels.

Image source: Getty Images.

Silvergate Capital has built a real-time payment system that better facilitates cryptocurrency trading because parties on the network can send and clear transactions instantly at any time, whereas most of the US payment system does not work in real time. Cryptocurrencies trade around the clock. Silvergate also acquired the assets behind it earlier this year. Meta platform Diem and US dollar stablecoin and plans to eventually roll out a stablecoin later this year.

Berman loves Silvergate for several reasons. On the one hand, he said the company “is one of the companies best positioned to benefit from the growing use of the stablecoin for payment, commerce and remittances.” He also believes that Silvergate, as a regulated bank, is better placed to operate in an uncertain regulatory environment. Finally, Berman believes Silvergate can grow its balance sheet much, much faster than a traditional bank.

Now what

I agree with Berman’s prognosis and strongly believe in Silvergate’s actions. The other advantage of Silvergate is that with so many deposits and excess cash on its balance sheet, it is incredibly tied to a rising rate environment.

According to its annual report, a 1% change in the Federal Reserve’s overnight lending rate would cause the bank’s net interest income to increase by nearly 60% over the next year. After raising the federal funds rate earlier this month, the Fed plans to raise its benchmark rate at its next six meetings.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.