Why Silvergate Capital Stock Jumped As Much As 23% Today

What happened

Shares of Silvergate Capital ( IF 18.67% ) fly away today. The stock rose 23.2% at 10:30 a.m. ET, retreating to a still-impressive gain of 16.3% at 1 p.m. ET. As an independent bank focused on the cryptocurrency industry, Silvergate has benefited from two simultaneous but distinct tailwinds.

So what

First, President Joe Biden signed an executive order outlining a “whole of government” effort to establish a legal and regulatory framework for cryptocurrency trading and ownership. The order contains measures aimed at stabilizing the crypto market while reducing the financial risks of digital assets. This is nothing short of great news for Silvergate, as the bank is ruthlessly exposed to the financial risks of the crypto sector. Moreover, every player in the cryptocurrency industry aspires to a proper legal system. The lack of clarity on issues such as trading limits and taxation further fuels the risks and uncertainties inherent in the market, so any small step in the direction of a firm direction should be seen as a positive change.

Image source: Getty Images.

The executive order alone would likely have propelled Silvergate shares at least 10% higher today, but that’s not the whole story. The broader banking sector is also up today as soaring oil prices receded while federal interest rates rose again. Taken together, these movements point to diminishing financial risks in the US economy, at least in the short term. Banks and investors – and especially traditional-minded investors in bank stocks – appreciate any indication of lower risks and increased stability.

Now what

Interest rates and oil prices are always on the move, so today’s boost from Silvergate’s bank-like structure may be temporary. On the other hand, the regulatory review of the crypto market is an indispensable step with long-term implications.

Whatever the final system looks like, it will surely be an improvement over the ramshackle legal oversight the crypto industry has today. Silvergate holds a first-mover advantage as a provider of capital and fiat trading services for many cryptocurrency exchanges. If the company can defend its position as the big banks begin to enter the industry, Silvergate could be a financial giant in the making.

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

Sallie R. Loera