Why Silvergate Capital Stock fell more than 5% today
Shares of cryptocurrency bank holding Silvergate Capital ( IF -5.55% ) were down 5.1% today at 2:45 p.m. ET. It was a bad day overall for equities (the S&P500 was down 1.4%, the Nasdaq Composite was down 2.7%), but cryptos in particular were seeing heavy selling as investors digested comments from the Federal Reserve.
Specifically, the minutes of the Federal Reserve’s March 15-16 meeting were released today. Along with a plan to hike interest rates this year, the Fed plans to gradually reduce the size of its balance sheet by $9 trillion. This spooked the markets.
In other words, the Fed is ready to end the era of extreme “easy money” policy as it battles inflation. A Fed Governor, Lael Brainard, also spoke today and indicated that the pace of monetary policy tightening may be faster than many investors expect. As the economy continues to “normalize” from the effects of the pandemic, the Fed has shifted from accommodative measures to help ease the life of the economy to inflation-fighting mode.
What does all this rhetoric have to do with Silvergate and the broader cryptocurrency space? As has been the case since the end of 2021, higher interest rates (or the expectation of higher rates) reduce the present value of risky assets. Since investors have few fundamental tools with which to value a crypto asset, they represent a particularly high-risk class of investments that will continue to be very sensitive to rate changes.
That being said, Silvergate is a unique way to play the expansion of digital assets and cryptos in general. Its platform helps facilitate crypto-trading platforms, and it recently acquired assets from the Diem Association – the stablecoin project that Metaplatforms (FB -3.68% ) (formerly Facebook) was taking the lead.
Silvergate Capital‘s stock is currently down 37% from its all-time highs reached at the end of 2021. If you’re long-term bullish on digital assets, this stock could be a great way to play the trend.
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