One significant problem that every crypto entrepreneur faces is finding a banking partner within his national borders. Banks have been loath to support the crypto sector for fear of money laundering or shady business schemes that might affront regulators or tarnish their pristine reputations. Silvergate Bank is the exception to the rule. Its executive team decided to seize the apparent opportunity before it, went public last November, and now it has ascended into the top ten percent of banking ranks in the United States. Despite “Black Thursday” in the crypto world, Q1 results also tout a 35% increase in deposits.
Digital currency customers reached 850, an increase of 617 over the past year, and it also claims to have another 200 in its pipeline. Its asset base is now $2.3 billion, a good bit less than the market leader, JPMorgan Chase, with over $3 trillion, but in the rankings compiled for 2019, it ranked 420 out of 5,186 banks. Silvergate is also an innovator, having constructed its proprietary Silvergate Exchange Network (SEN), which enables its crypto clients to pay and receive funds from one another on a “24X7X365” basis, a definite necessity since the crypto market operates without ever closing.
Per the bank’s earnings report: “Our first quarter results demonstrate our continued success expanding the SEN network as we grew our net customer count to 850 from 804, at year end, while maintaining a pipeline of more than 200 potential customers. Additionally, we experienced transaction growth in excess of 100% as a result of the increased volume of Bitcoin trades combined with the strong network effect of the SEN.” SEN’s volume grew 123% to $17.4 billion for the quarter, handling 31,405 transactions. These figures connote a trebling of system volume over the course of a single year.
When we last reported on Silvergate’s successful IPO in November of last year, it opened at $12 per share, but some shares had risen to as high as $16. Due to the current economic climate, share values had fallen to nearly $14, but after its favorable Q1 report, shares increased 10% to $15.75. The bank remains profitable, although it did report a decline due in part to the global COVID-19 pandemic caused slowdown.
At the time of its IPO, we had noted: “Crypto advocates are celebrating the one bank that demonstrably stepped forward to serve their nascent industry, when the rest of the overly conservative “herd” of financial institutions preferred to look the other way.” Also noteworthy at the time, CNBC said the bank would be a “key to growth in the digital asset industry”, and the Wall Street Journal praised the executive team for taking “a striking stance in the staid world of banking”. Silvergate appears to have struck a vein of digital gold right from its inception.
Surprisingly enough, the collapse of crypto valuations in March did not seem to impact the financial stability of the bank from the perspective of deposits. Crypto customers actually raised capital levels, as per the earnings report: “The increase in total deposits from the prior quarter was driven by an increase in deposit levels from our digital currency customers who maintained excess capital with Silvergate as a result of the dislocation taking place in the digital currency markets during March.”
Lastly, 850 digital customers may sound slight when over 5,400 cryptocurrencies are listed on CoinMarketCap.com, suggesting that San Diego-based Silvergate may have only attracted the high-risk segment of the sector. Of their 61 exchanges, however, the bank services such well-known names as Bitstamp, Bittrex, Coinbase, Gemini, and Kraken. 541 institutional investors and 248 other customers comprise the remaining crypto clients. Institutional investors actually increased by 32 during Q1, as well.
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