Crypto Bank Silvergate Capital Lower as Wells Fargo Turns From Bull to Bear

While it’s still early days in terms of broader digital asset adoption, the growth outlook for Silvergate Capital (SI) as a “pure-play crypto banking solution” is very limited in the current crypto winter environment, Wells Fargo said in a research report Thursday.

Silvergate is one of the most asset-sensitive banks, but deposit outflows due to weaker crypto prices more than offset the benefits from higher interest rates, said the analyst team, led by Jared Shaw.

Wells Fargo double-downgraded Silvergate from overweight to underweight, and cut its price target for the stock to $70 from $115. Shares were down 5% to $74.95 in early Thursday trading.

Silvergate’s growth plans rely on a recovery in cryptocurrency markets or rapid stablecoin adoption, the note said, and its two main initiatives are the launch of stablecoin- and bitcoin-backed lending via its SEN Leverage platform. However, said Shaw and team, with stablecoin regulation taking longer than expected and little news on the bank's planned launch, this initiative may prove to be a “significant drag” on profitability in the medium-term.

Coming quarters will be especially challenging for the stock as greater clarity is needed on the wider economy ahead of a crypto recovery, the analysts added.

Read more: Silvergate CEO Sees More Near-Term Pain for Crypto but Still Bullish on Bitcoin Lending