Why Silvergate Capital Stock climbed 35% in October

What happened

Silvergate Capital ( IF -0.13% ), the holding company of Silvergate Bank, saw its share price jump 35.6% in October, according to S&P Global Market Intelligence.

This fintech, a bank and stock exchange for institutional investors in digital currency, has far surpassed the Nasdaq composite, up 7% over the month. Silvergate is up around 188% year-to-date through Nov. 8, trading at around $ 214 per share.

Image source: Getty Images.

So what

Silvergate got a boost after posting strong third-quarter earnings on October 19 with net income up 231% year-on-year to $ 23.5 million, or $ 0.88 per share, and 12 , 4% from the second trimester.

The company’s digital currency customers grew 40.6% year-over-year to 1,305, while its customers’ average digital currency deposits reached $ 11.2 billion, the amount the highest in the history of the company.

In addition, the company has made transfers of US $ 162 billion on its Silvergate Exchange Network (SEN), a platform that allows institutional investors to transfer money to digital currency exchanges and trading partners by real time, 24 hours a day. This is a 342% year-over-year increase, but down from $ 240 billion in the second quarter. The sequential decline in the use of the SEN was correlated with the decline in cash transaction volumes of Bitcoin and Ethereum, but they haven’t fallen as much – 32% vs. 43% for cryptocurrency spot trading.

The stock really broke at the end of the month after Morgan stanley Analyst Sheena Shah released a research note according to which Silvergate’s stock price tracks Bitcoin, the largest cryptocurrency, which itself has seen strong gains. This essentially confirmed what Silvergate executives pointed out during the third quarter earnings call. But CEO Alan Lane said that while there is a high correlation, it is not 100% and should be less correlated as Silvergate adds more products and services:

We are in a growing industry with a growing customer base and a growing range of products. And so, while we certainly have a strong correlation with spot trading volumes… we believe that all of this will generally increase and to the right in the months, quarters and years to come. And as we keep adding more products and services, we will continue to generate more and more revenue.

Now what

Silvergate has some positive developments which should drive continued growth. Earlier this year, Meta-platforms, the company formerly known as Facebook, has chosen Silvergate as the exclusive issuer of its upcoming Diem stablecoin. The Diem pilot is expected to be released soon, as the company has been waiting for the president’s financial markets task force to release its report on stablecoin risks and opportunities for guidance. This report came out last week, so look for the pilot launch of Diem soon.

Additionally, in the third quarter earnings report, the company said its SEN Leverage loan commitments were $ 322 million, up from $ 258 million on June 30 and $ 35 million a year ago – more positive news.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

Sallie R. Loera