While it’s still early days in terms of broader digital asset adoption, the growth outlook for Silvergate Capital (SI) as a “pure-play crypto banking solution” is very limited in the current crypto winter environment, Wells Fargo said in a research report Thursday.
Wells Fargo downgraded its rating on the stock from overweight to underweight and cut its price target to $70 from $115, sending the shares down 5% to $74.95 early Thursday.
Silvergate is one of the most asset-sensitive banks, but deposit outflows due to weaker crypto prices more than offset the benefits from higher interest rates, a Wells Fargo team of analysts led by Jared Shaw wrote.
The crypto bank's growth plans rely on a recovery in cryptocurrency markets or rapid stablecoin adoption, the note said, and its two main initiatives are the launch of stablecoin- and bitcoin-backed lending via its SEN Leverage platform.
The analysts said, however, that with stablecoin regulation taking longer than expected and little news on the bank's planned launch, that initiative may prove to be a “significant drag” on profitability in the medium term.
Upcoming quarters will be especially challenging for the stock as greater clarity is needed on the wider economy ahead of a crypto recovery, the analysts added.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.