Why Silvergate Capital Is a Top Cryptocurrency Bet for 2022!
December 17 2021 - 6:09AM
Finscreener.org
Cryptocurrency investors have
made money hand over fist in the last two years, given the
widespread adoption of digital assets. Now viewed as an alternate
class, the
cryptocurrency space
recently touched a market cap of $3
trillion. If you remain bullish on the long-term prospects of
cryptocurrencies, it makes sense to place your bets on
Silvergate Capital (NYSE:
SI).
A company valued at a market cap
of $4.5 billion, Silvergate Capital provides a wide range of
financial infrastructure solutions and services. It has developed
these solutions for several cryptocurrency exchanges all over the
world.
The bull case for Silvergate Capital
Silvergate Capital has built a
real-time payments system which is known as the SEN or the
Silvergate Exchange System. This platform allows parties on this
network to send or receive large payment transactions. These
transactions can be sent anytime and are cleared on a real-time
basis, making the platform extremely advantageous for
cryptocurrency market participants that include institutional
traders and exchanges.
Silvergate was in fact the first
bank to provide this service and the SEN has onboarded 1,300
customers by the end of Q3. The SEN in fact allows Silvergate to
accumulate deposits without having to pay interest to customers.
The company also issues traders with a line of credit by
collateralizing Bitcoin.
Silvergate counts major exchanges
such as Coinbase (NASDAQ:
COIN) and Binance as its customers. This has allowed
Silvergate to increase cryptocurrency deposits by 500% in the last
two years.
In Q3 of 2021, the SEN handled
$162 billion in the total transactions which was an increase of
346% year over year. However, it was 32% lower compared to Q2 of
this year. Further, Silvergate also reported $8.1 million in
transaction sales during Q3 which is basically the fee income
earned from cryptocurrency customers. Transaction revenue more than
doubled year over year but fell from $11.3 million in the June
quarter of 2021.
The company’s transaction volumes
are dependent on cryptocurrencies such as Bitcoin and Ethereum. The
trading volumes of the two largest cryptocurrencies fell by around
40% in Q3 which impacted the
transaction volume of Silvergate Capital in the quarter.
What next for SI stock investors?
Silvergate Capital has increased
revenue from $44 million in 2017 to $88.8 million in 2020. Analysts
tracking the stock expect the company to increase sales
by 93.3% to $177 million in 2021 and
by 42.5% to $252.25 million in 2022. Its adjusted earnings per
share is forecast to increase from $1.36 in 2020 to $3.58 in
2022.
We can see that SI stock is
valued at a forward price to sales multiple of 17.8x and a price to
earnings multiple of 41x which might seem expensive. However, a
growth stock commands a premium, and Silvergate Capital remains
part of a rapidly expanding market making it a top bet for
long-term investors.
Silvergate Capital stock has
gained over 1,000% in the last two years but it’s also down 34%
from all-time highs, allowing you to buy the dip.
The company’s CEO explained,
“Silvergate had another great quarter, underscored by record
quarterly pre-tax income, continued platform growth, and an
expanding balance sheet. In the third quarter we grew average
digital currency deposits to $11.2 billion, the highest in our
history, added new digital currency customers to the SEN, and
further increased SEN Leverage commitments and balances. Our strong
results and increasingly diverse earnings stream highlight the
important roles that we play in serving our customers in the still
nascent digital currency industry.”
Analysts tracking Silvergate
stock have a 12-month average price target of $201 which is 40%
above its current trading price.
Coinbase Global (NASDAQ:COIN)
Historical Stock Chart
From Jun 2024 to Jul 2024
Coinbase Global (NASDAQ:COIN)
Historical Stock Chart
From Jul 2023 to Jul 2024