Silvergate Capital – Update

Here’s an update on Silvergate Capital

There are times when you are excited about the stock prices and momentum behind it and then there are times when you are excited about the business and the earnings momentum behind it. Silvergate Capital is one stock where I am excited about both aspects.

I am not a big fan of Bitcoin but I am bullish about tools that enable Digital currencies and Blockchain technology. I view Silvergate Capital as not a direct play (even though the market views it) but as an enabler. The company facilitates real-time transactions 24*7 between institutional traders and crypto exchanges through its Silvergate Exchange Network (SEN).

Yesterday, Silvergate Capital came out with solid earnings. The EPS was up 65% for the quarter sequentially and up 283% compared to Q2 2020. The long-term prospects of the business look good as long as there is interest in cryptocurrencies/digital currency. The only issue worrying investors: banking regulation that might require banks to hold a lot of capital if they are dealing with cryptocurrency. But if you understand the business model: Silvergate is just facilitating transactions and not owning Bitcoin. Having said that it might impact some of the lending businesses Silvergate wants to grow. 

Purely on price action, Silvergate Capital stock has built a base at the level of 80 and now it seems to have converged with 200 dma. I will be bullish on the stock as long as it holds 80. There is a big long-term story in the stock and if it does not break down due to some regulatory issues, eventually it should surprise on the upside. Having said all the above, you never know and hence I would be out of the stock if it breaks down below 79 for whatever reason.

I still believe in the long-term story of Silvergate Capital and the price structure still paints an optimistic picture about the future.

Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purposes. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers.