Silvergate took a big bet on crypto and it paid off – The Average Joe
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    Silvergate took a big bet on crypto and it paid off

    victorlei

    February 10, 2022

    silvergate

    Yesterday, we glossed over an interesting company while discussing stablecoins (check it out here if you missed it) — so we decided to take a closer look.

    You can take big risks when you’ve got nothing to lose. While major banks stayed away, Silvergate Capital (NYSE:SI) took a chance on crypto in 2013…

    The bet with a big payout…

    Silvergate was founded in 1988 but the real story began in 2013 when it became a crypto-focused bank — getting a first-mover advantage. Today, Silvergate is…

    • The leading US crypto bank with over 1,300 clients and 14B in deposits.
    • Profitable with strong growth rates closely tied to crypto’s — 94% sales growth in 2021.

    But it’s also at the mercy of crypto’s volatility — with SI up 830% between 2020-2021 as crypto prices surged — but down 42% since November (again alongside crypto prices).

    SI also offers traditional services — providing real estate loans and other banking services — but its crypto payments network business is what’s growing the fastest…

    Silvergate’s prized asset

    In 2017, Silvergate launched its payment platform, Silvergate Exchange network (SEN) — which lets institutional clients move large sums of capital between accounts and crypto platforms.

    • Given the 24/7 nature of crypto, traditional large banks couldn’t serve crypto customers.
    • SEN was one of the first products to address this need — which subsequently grew its other crypto services.

    In 2021, SEN facilitated $787.4B in transfers from 1,381 clients, generating $35M in fees for Silvergate — 222% growth from the previous year and nearly half its net income.

    Last month, Silvergate acquired Meta’s Diem assets — carrying on Meta’s dreams of building a stablecoin product — a massive market as highlighted before.

    With its hands in stablecoins, Silvergate’s role in crypto would expand — pushing it towards fintech and away from banking.

    Investors: Looks familiar…

    Silvergate reminds us of Silicon Valley Bank (NASDAQ:SIVB) — which found a niche providing banking services to tech and healthcare companies in Silicon Valley.

    • In tech’s early days, banks were reluctant to fund startups and innovation — which gave SIVB an early advantage.
    • SIVB outperformed the market in the past 10 years with a 981% total return (27% compounded annual return).

    Now, Silvergate is giving investors another opportunity to get exposure into an early sector — without directly holding the riskiest assets.

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