Crypto-focused bank Silvergate Capital Cop. (SI) rose about 6% after Morgan Stanley initiated the stock with an overweight rating and a $158 price target, indicating a potential 52% upside for the shares.
- “Silvergate gives bank investors a nearly pure-play way to participate in the rapid growth of the nascent cryptocurrency industry,” Morgan Stanley analyst Ken Zerbe wrote in a note earlier.
- Zerbe wrote that he believes Silvergate should be valued based on its earnings growth rather than comparing it to traditional banks and “slower-growing” banks, especially given its “minimal” credit risk. He highlighted that Silvergate has grown its earning asset balances by 434% over the last year to $12.1 billion with almost all of this growth from increasing the deposit balances of its digital currency customers.
- Silvergate Bank accepted a whopping $4.3 billion in new deposits from new and existing digital currency customers in its second quarter, the company announced in July.
- .”.. Given the wide range of outcomes, both in terms of its growth potential and meaningful risk factors, SI has the widest risk-reward skew of our coverage, with a $300 bull case (189% upside) and a $40 bear case (61% downside,” Zerbe wrote.
- Zerbe remained cautious on Silvergate as its one of the only banks that provides “payment solutions” to the cryptocurrency market so increased competition may provide an alternative to the Silvergate Exchange Network, which could “materially” limit new client acquisition and slow deposit and fee income growth.