The bitcoin price boom is giving a huge boost to a California bank that accepts cryptocurrency deposits and distributes bitcoin-backed loans.
Actions of Captain SilvergateI’ve risen over 120% so far this year – and the stock has climbed almost 1,300% since its IPO in November 2019.
More and more financial services companies, such as Bank of New York Mellon, Visa, MasterCard, and BlackRock, are starting to embrace bitcoin. But undoubtedly no bank is as “all-in” on cryptography as Silvergate.
CNN Business spoke to Silvergate CEO Alan Lane about the bank’s bitcoin activity and what he predicts for the crypto world.
Silvergate decided to venture into cryptocurrency after Lane first personally invested in bitcoin in 2013, he said. He realized there was a need for a financial institution that could focus on “plumbing” cryptocurrency transactions, receiving deposits, and providing loans.
Such a bank should be able to serve its customers at any time of the day, he said, because bitcoin – unlike currencies, stocks, bonds, and other government-guaranteed financial assets – keeps on going. never to negotiate. You cannot have traditional banking hours for a non-traditional asset.
“We started with crypto deposit accounts for customers and quickly learned that businesses needed more help beyond traditional 40-hour-a-week banking,” Lane said. “We needed to build a bank for a 24/7 digital world. “
Silvergate currently has around $ 5 billion in cryptocurrency-backed deposits. But the bank’s main selling point for customers is its Silvergate Exchange Network (SEN), which allows customers to transfer dollars to digital exchange offices at any time.
“There is a lot of friction in the banking industry. Wire transfers can take a long time, ”Lane said. “The beauty of SEN is that once a deposit account is opened, you can transact with others seamlessly and transfers are instant.”
He noted that there was also “more liquidity since the crypto markets are active at night and on weekends while the traditional banking system is closed.”
Customers have responded to this. Silvergate announced in October that it had made more than $ 100 billion in transfers since SEN launched in 2017.
Lane said the bank’s clients are primarily institutional investors and other companies doing business in bitcoin and other cryptocurrencies. Customers cannot, as individuals, create a bank account for their bitcoin or other digital assets.
Lend to customers who want to buy more bitcoin
Silvergate customers include Coinbase, the Bitcoin wallet company that plans to go public later this year, and Square, the payments giant headed by Jack Dorsey that allows customers to buy and sell bitcoin.
The company has also expanded its lending business to take advantage of the fact that more and more financial companies are looking to invest in bitcoin. The bank launched a product called SEN Leverage last year, which gives investment firms loans backed by bitcoins.
“Think of it like a margin loan: customers deposit bitcoin and then we lend them dollars, which a lot of those customers use to buy more bitcoin,” Lane said.
All of this makes the Silvergate stock a sort of proxy for bitcoin. Stocks tend to rise when bitcoin does and fall when the price of crypto falls. This has been good for the stock lately, but it’s clear that Silvergate is a lot riskier than your average bank stock.
Silvergate shares fell 4% on Monday, for example, as bitcoin prices fell.
Another possible concern is the threat of increased competition. So far, Silvergate is one of the few banks with heavy exposure to bitcoin, but it is not the only one. New York-based Signature Bank also has a growing bitcoin business, with around $ 10 billion in crypto deposits.
“This is a very solid area of growth,” said Eric Raymond Howell, Senior Executive Vice President of Corporate Development and Business at Signature Bank, on the most recent earnings conference call at Signature Bank. the bank. “We’re very excited about what’s going on there. It is obvious that digital assets and cryptocurrencies are not going to go away. “
Signature Bank CEO Joseph John DePaolo added that the company “remains ahead of the pack and is not a follower but a technologically wise leader” and that the bank’s crypto business “is growing by leaps and bounds. “.
Lane conceded that “signing is probably the closest thing to the competition” for Silvergate. But he believes the bitcoin banking business is big enough for many players, especially since other banks are just starting to dip their toes into crypto waters.
“Suffice it to say that we are one of the few banks working in bitcoin, so we hope to be involved with any business that is serious about getting into cryptocurrency,” Lane said.