Why Silvergate Capital had a volatile day on Wednesday

What happened

It was a volatile session for Silvergate Capital (IF -0.33%) Wednesday. The stock price fell some 5.2% in the morning, but rebounded into positive territory late in the day before ending the day down just 0.3%.

This end result was in line with the broader market, which was down across the board. The Dow Jones Industrial Average fell 0.3%, the S&P500 fell 0.7%, and the Nasdaq Compound was down 0.9%.

So what

It appears that the cryptocurrency-focused bank’s shares rallied primarily in response to the release of several analyst notes covering it. At one end of the spectrum, Wells FargoJared Shaw lowered his price target from $78 to $50 – which, from his current price of $54 per share, would represent an 8% drop. The title is down 63% since the start of the year.

On the other hand, Cannacord analyst Joseph Vafi lowered his target from $200 to $150, which would still represent a 178% increase from current levels. You can see that there is quite a big disparity between bears and bulls about this bank. While Silvergate missed its consensus third-quarter revenue and profit estimates, Vafi said the bank exceeded its estimates.

Also on Wednesday, Craig-Hallum analyst George Sutton lowered his target from $160 to $100, or 85% above the current price. According to TheFly.com, reasons for Sutton’s price drop include the loss of third-quarter earnings and delays in rolling out its own stablecoin. He also noted that trading volumes on the Silvergate Exchange Network are down and there is no indication when this situation will change for the better.

A fourth analyst, David Chiaverini of Wedbush, cut his price target on Silvergate shares to $85 from $120, or 57% above the current price. He cited crypto deposit outflows of $1.4 billion which was well above the expected $500 million, the use of traded deposits to increase funding, and the lag of stablecoins as the main reasons for the price reduction. target, TheFly.com reported.

Now what

Silvergate Capital follows the cryptocurrency market, for the most part, so as long as this crypto winter persists, don’t expect it to be any different.

But, in the long term – as most analysts imply with their price targets – the outlook looks bright for Silvergate given its status as the leading (and pioneering) bank and trading platform for the industry. of cryptocurrency.

Additionally, rising interest rates will benefit Silvergate Capital because it does not pay interest on deposits, but earns interest when it lends those funds. However, the sharp decline in deposits due to falling crypto prices negated any gains it might have made from rising rates.

This should also be resolved, but overall there is so much uncertainty in the crypto space right now that Silvergate stock should be viewed with caution. Any investment in it should be a relatively small part of a diversified portfolio.