Why Silvergate Capital Stock Had a Wacky Wednesday

What happened

Silvergate Capital (IF -4.55%) the stock had a few bumps and jumps on the day of the bump, at one point rising 4% from its close on Tuesday before stabilizing at a loss of nearly 5%. This is due to the usual volatility of cryptocurrency-related assets, but also due to the latest position taken by an influential investment bank on the shares of the specialist lender.

So what

Sentiment on Silvergate, a bank that operates a trading platform for institutional investors that allows them to trade to and from cryptocurrency exchanges, is often swayed by how investors generally feel at the regard to coins and tokens. These have generally gone up in price over the past few days. For that reason, at least some investors were bullish on crypto-related assets like Silvergate — hence the spikes in its share price on Wednesday.

But it couldn’t quite overcome a downgrade in recommendation, and from a top company at that. After market hours on Tuesday, Goldman Sachs (GS 0.99%) analyst Will Nance cut his recommendation on Silvergate shares to neutral from his previous long. Rubbing salt in the wound, Nance also cut his price target significantly to $64 per share from the previous $108.

Goldman’s tipster moves come just over a week after Silvergate announced third-quarter results that missed both the top and bottom. Following this, the stock was hit by a series of price target declines.

Nance’s main rationale is, as he wrote, that “we believe that greater uncertainty about the growth trajectory of deposits, combined with reduced sensitivity to interest rates, primarily depending on the hedging of the company, will likely prevent stocks from outperforming”.

Now what

In other words, despite being lumped together as a cryptocurrency stock, Silvergate remains, at its core, a traditional bank. As such, it is subject to changes in interest rates; as these have increased of late and look to continue on this trajectory, demand for corporate loans is likely to subside.

Eric Volkman has no position in the stocks mentioned. The Motley Fool fills positions and recommends Goldman Sachs. The Motley Fool recommends Silvergate Capital Corporation. The Motley Fool has a disclosure policy.

Sallie R. Loera