Silvergate emerges as proxy crypto investment following Morgan Stanley’s endorsement

silvergate, morgan stanley, bitcoin
  • Silvergate primed for a 52% increase in stock price, says Morgan Stanley report.
  • The bank constitutes a bridge between institutions and crypto market, while not falling under heavy regulation from SEC.

YEREVAN (CoinChapter.com) – Silvergate, the “go-to bank for the cryptocurrency industry,” received a strong boost from the financial giant Morgan Stanley. The latter covered Silvergate with an overweight rating and pinpointed the target share price at $158 against the current $110. The stock jumped 6% in response, possibly constituting a profitable crypto-related investment.

In detail, an overweight rating means the bank in question is likely to do better than its competitors. Morgan Stanley asserted that Silvergate is not only primed for substantial gains but is also a forefront to crypto investment, despite the associated volatility and regulatory risks.

Silvergate endorsement

In hindsight, Morgan Stanley is the fourth-largest investment bank in the world by revenue.

It was also the first bank to offer Bitcoin fund access to its wealthy clients and hasn’t veered from the crypto path since. However, Silvergate, which was crypto-leaning from the getgo, attracted little attention and little bank coverage.

The bullish Morgan Stanley report pulled the bank to the forefront, predicting a 52% upside.

Ken Zerbe, a Morgan Stanley analyst, published the report on Monday, calling Silvergate “one of the most distinctive banks” they cover. The Silvergate Exchange Network (SEN) is at the core of the research. It facilitates USD transfers between digital currency customers.

Growth in core deposits, which are up 581% Y/Y to $11.4 bil, is a key part of our investment thesis. We expect deposit growth will remain robust, albeit growing at a much slower pace than over the last year, rising 47% over the next 12 months, driven by the growing number of participants in the cryptocurrency market using the SEN and increased acceptance of cryptocurrency as an asset class and a form of payment.

reads the report.

The perspective of the growing adoption of SEN directed increased attention towards the bank and resulted in raised share price. Moreover, the bank promises to be an easy gateway into crypto investment.

Silvergate gives bank investors a nearly pure-play way to participate in the rapid growth of the nascent cryptocurrency industry.

commented Mr. Zerbe.

Also read: Ripple ready to settle with the SEC, but there’s a catch, CEO Brad Garlinghouse says

Crypto regulations

The crypto market came under increased scrutiny from the US Securities and Exchange Commission.

The chairman Gary Gensler voiced his intentions to investigate crypto exchanges and exchange networks more closely. However, while the agency was more focused on decentralized crypto exchanges such as Uniswap, centralized exchange Coinbase got its share of trouble.

The SEC gave Coinbase an ultimatum. The exchange could fold the plans on launching a Lending Program or launch it and face a lawsuit. Coinbase officials chose the former and lay down their arms for the time being.

Silvergate Exchange Network, on the other hand, allows customers to deposit funds with the bank and move them freely in and out of crypto without paying the depositor’s interest. Thus, the bank can avoid scrutiny from SEC, despite issuing loans backed by Bitcoin.

Moreover, Silvergate accepted $4.3 billion in deposits from both new and existing crypto customers in the second quarter of 2021.

“Unlike most other banks, loan growth is not a meaningful driver of earnings growth (but deposit growth is), implying far less credit risk at Silvergate than most other banks.”

commented Morgan Stanley

The report also noted that Silvergate has little competition at the moment. It holds the prime position in providing “payment solutions” to cryptocurrency markets. However, the $158 target mark could skew if more institutions pose a competition and “materially limit” the number of new customers.

Also read: Long-term Bitcoin holders now have 80.5% control over BTC supply.

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