Silvergate shares slump 20% after it delays stablecoin rollout
Shares of Silvergate Capital Corp (SI) dropped more than 20% Tuesday after it announced that its stablecoin won't roll out before year-end.
The stock was already under pressure earlier Tuesday after the bank reported its clients didn't exchange digital assets during the “crypto winter” as briskly as they did in previous quarters, according to its earnings release.
Silvergate shares lost $14.39 per share to $56 midday Tuesday.
Silvergate had planned to debut a new stablecoin payments initiative built from purchased assets of META’s failed stablecoin project, Diem. The company sought to launch before the end of the year. But on its Q3 earnings call Tuesday, Silvergate CEO and President Alan Lane said: "Unfortunately, we no longer expect that to happen this year."
Some investors anticipated the growth of the company’s assets could accelerate from the stablecoin project, potentially impacting Silvergate’s share price, Mark Palmer, an analyst with BTIG, told Yahoo Finance. However, Palmer's model and $135 per share price target on SI doesn't reflect any contribution from the yet-to-be-released stablecoin program.
Lane cited the delay as being due to regulatory compliance. During the call's Q&A portion, he clarified the issue isn't one of technological readiness.
"We're not in a position at this point to to provide an update on the timeline," added Silvergate Chief Strategy Officer Ben Reynolds.
Before the call, the bank reported that its average digital asset customer deposits were $12 billion during the third quarter, compared with $13.8 billion in the second quarter, $14.7 billion in the first and $13.3 billion in the final three months of last year.
While the company reported a record net income of $43.3 million versus $38.6 for the previous quarter, its digital asset customer base grew by 5% to 1,677, much slower than the 17% increase in the second quarter.
The third-quarter earnings from Silvergate — known for carving out a niche in traditional finance by banking major crypto firms —underscored the stunted interest in trading bitcoin and other digital coins that could prove to be a trend that continues to wear on crypto firms.
While cryptocurrencies may have sold off less than other risk assets in the third quarter, crypto trading is still 23% below where it sat in January, according to crypto indexer, Nomics.
The problem, Palmer noted, is “crypto trades 24/7, but traditional banking runs on traditional banking hours.”
That difference can create a timing mismatch for the capital demand crypto firms need to meet. Silvergate addresses the mismatch by making its fiat services available around the clock, Palmer added.
According to its earnings release, Silvergate’s exchange network (“SEN”), which manages digital asset customer exchanges, handled $112.6 billion of transfers in the third quarter of 2022, a decrease of 41% compared with $191.3 billion in the second quarter of 2022, and a decrease of 30% compared with $162.0 billion in the third quarter of 2021.
“While volumes on the Silvergate Exchange Network (SEN) decreased this quarter compared to the overall industry, we remain confident in the power of our platform and the opportunities for expansion within the network,” Lane said in the earnings statement.
Compared with other the crypto-linked companies, Silvergate was less affected by crypto's rough second-quarter when prices for coins halved.
Year to date Silvergate shares have sold off by more than 62% from $150. That's far worse than the Nasdaq, which has lost 31% and MicroStrategy (MSTR) (-58%), the largest bitcoin holding company but better than Block (SQ) (-65%) and Coinbase Global (COIN) (-73%).
Updated with prices and comments from Silvergate's Q3 earnings call.
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David Hollerith is a senior reporter at Yahoo Finance covering the cryptocurrency and stock markets. Follow him on Twitter at @DsHollers
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