The Silvergate Stock Rally. Finding a Reason Is Challenging.

BlackRock, the world’s largest asset manager, announced a major stake in Silvergate Capital, the battered lender to the cryptocurrency sector whose share price has been a high-profile casualty of the crypto catastrophe. The revelation may have resulted in a substantial rise in Silvergate shares on Tuesday, which does not reflect the regularity of BlackRock’s filing.

In a filing with the Securities and Exchange Commission on Tuesday, BlackRock (BLK) disclosed a 7.2 percent stake in Silvergate Bank (SI), representing 2,285 shares acquired on Dec. 31. This makes BlackRock one of the bank’s largest shareholders. However, BlackRock is one of the world’s largest providers of index funds, and the disclosure almost certainly reflects changes in index fund positions or fund flows rather than a fundamental view of the stock.

On Tuesday, Silvergate shares jumped 8% to close at $14.19. On Wednesday, the stock rose another 5% before declining amid drops in the Dow Jones Industrial Average and the S&P 500.

Silvergate, formerly promoted by Wall Street as one of the best-regulated ways to play the once-booming crypto business, has been slammed by the digital asset crisis, with shares down 86% over the past year – considerably more than Bitcoin.

Silvergate, a federally insured bank, positioned itself as a significant service provider to cryptocurrency exchanges and investors, and its stock was a major benefactor of the Bitcoin bull run in 2020. However, the drop in token values since late 2021, as well as a series of high-profile bankruptcies, including one of its biggest customers, FTX, amid fraud charges, have caused the bank a slew of problems.

Silvergate has been forced to lay off huge numbers of employees and halt dividends to minimize expenses after declaring a staggering $1 billion loss in the fourth quarter due to losses on asset sales necessary to stay liquid. It’s been a string of bad news for the group’s investors.

While the stock has yet to recover, with the price down in the double digits thus far in 2023, more and more losses simply add to the case that Silvergate may be a buy – provided the bank can carry off its turnaround. A recovery in crypto markets, more regulatory awareness, and institutional investors coming up to Bitcoin and other digital assets would all be beneficial.

While Silvergate stock still has an average analyst recommendation of Hold, the average price target forecasts gains of about 20% from present levels.

Bill Miller, the famed value investor, recently stated that he had increased his investment in Silvergate, which he highlighted was trading at $155 just over a year ago.

However, that is a price level Silvergate stockholders can only dream about now. If the worst is over for Silvergate stock, then somewhere higher than the low teens might be in sight shortly.