Shares of crypto-friendly bank Silvergate Capital fell by more than 20% Tuesday after its earnings report showed a decrease in deposits and its leadership announced a delay for a major stablecoin project.
The California-based company is one of the top providers of banking services to exchanges and other crypto companies, a market that has seen its digital tokens lose more than $2 trillion in value over the past year during a so-called crypto winter.
Silvergate reported earnings per share of $1.28 against expectations from Wall Street of $1.45, according to Zacks Investment Research. The deposits Silvergate holds from digital asset companies fell to $12 billion on average during the quarter, down about 13% from the previous quarter.
Adding to its pain, the bank’s big stablecoin project will not meet its goal of launching this year, President and CEO Alan Lane said on the company’s analyst call. Silvergate in January purchased the assets of Meta’s failed Diem blockchain project with plans to use the technology to launch a U.S.-dollar-backed stablecoin.
“Unfortunately, we no longer expect that to happen this year,” Lane said.
The technology is ready to go but the firm is “working with regulators and policymakers and making sure we get this right,” Lane said.
Lawmakers in the House of Representatives have been negotiating for months on a bill to regulate stablecoins, but nothing has advanced.
Outside of that initiative, one of Silvergate’s key products is a network that allows crypto exchanges and other clients to instantly transfer funds. But payments on the Silvergate Exchange Network fell by 41% on the quarter, to $112.6 billion.
“Volumes were mainly impacted by trends in the broader industry, specifically within stablecoins, as volumes from stablecoin issuers, such as USDC, saw a sizable drop in market cap during the quarter,” Lane said.
Lane said the company expects usage of its network won’t always be closely tied to crypto market values. “We remain confident in the power of the platform and the opportunities for expansion within the network,” he said.
Silvergate has grown its deposits from under $1 billion a decade ago to more than $13 billion, largely through providing banking services to crypto companies. Wall Street investors rewarded it during boom times for crypto last year, with Silvergate's share price peaking near $220 in November.
The firm hadn't been hit as hard on Wall Street as other crypto-focused companies in the first half of the year. Its share price climbed following its second-quarter earnings in July.
But some analysts were beginning to have doubts. Wells Fargo warned in a downgrade a couple weeks ago that the growth outlook for Silvergate Capital as a “pure-play crypto banking solution” is limited during a crypto winter.
Research firm Keefe, Bruyette & Woods still held a positive “outperform” stance on Silvergate in a report following earnings Tuesday, but noted that “outflow was more than we expected, and overall digital asset activity clearly slowed in Q3 as measured by SEN transfers.”
Lane told analysts that the recent moves by Mastercard, BNY Mellon, and BlackRock to expand crypto offerings should be taken as a positive sign for the industry.
“There is a lot of institutional adoption that is still coming — none of these things are live yet, they’ve all been an announcement about things to come — so we could not be more optimistic on the long-term trajectory,” Lane said. “But these things take time to play out.”
Correction:The original version of this story cited erroneous timing for the release of Wells Fargo's research report on Silvergate. This story was updated on Oct. 19, 2022.
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