Silvergate Bank: How Deep Is the Moat?

Silvergate Bank has pioneered financial services for crypto startups. But now it faces new rivals. Can it deepen its competitive moat?

AccessTimeIconSep 29, 2020 at 11:00 a.m. UTC
Updated May 9, 2023 at 3:11 a.m. UTC

While not often in the limelight, Silvergate Bank serves as an integral part of the cryptocurrency ecosystem.

It’s often claimed by crypto enthusiasts that bitcoin will eventually displace the financial system as we know it. As it stands today, however, banks still play the pivotal role of fiat on/off ramps for exchanges and investors.

CoinDesk Research presents an in-depth look into San Diego-based Silvergate Bank, a leading bank serving the cryptocurrency industry. With over 880 digital asset clients with an aggregate balance of $1.5 billion in deposits, Silvergate is one of the market leaders within this niche market.

Some takeaways:

  • Due to increased levels of risk and higher compliance requirements, there exist only a handful of U.S. banks, including Silvergate, who provide banking services to cryptocurrency customers.
  • Silvergate sets itself apart through its deep list of industry connections as well is its unique products that cater to the digital asset industry such as its instant payment network, SEN.
  • The total number of customers continues to increase, but Silvergate’s deposits have failed to grow over the past two years. Despite the utility of SEN, management notes the bank has experienced deposit outflows to competitors offering yield on deposits, unlike Silvergate whose deposit base is almost exclusively non-interest bearing.
  • As the space matures, it’s likely more banks will feel compelled to service the crypto market, just as JPMorgan recently announced its acceptance of Coinbase and Gemini as its first digital asset customers. This type of development could be a major cause for concern for Silvergate as it competes with much larger financial institutions with more access to capital. Should this become the case, it will become crucial for Silvergate to deepen its competitive moat by boosting SEN’s utility.

Read the full report here.


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