The Silvergate Bank is spending this month initial public offering cash to expand, as it anticipates a high cryptocurrency price volatility to fuel deposits and rising trading volumes.
Alan Lane, the CEO of Silvergate, has said in an interview that the IPO provides capital for the new products to comply with the high demand from institutions to have crypto deposit and lending solutions.
He added that a higher price volatility can bring profit opportunities and price differentials in the market, which would have traders making larger deposits with Silvergate. He declared,
“We don't predict when it will happen but we know that there might be an additional period where the volatility drives up volumes, and want to make sure that we can help our customers when that happens.”
Bitcoin Block Reward at Half Could be a Catalyst
Lane also wanted to mention that the Bitcoin (BTC) block reward being half in the year that’s coming would be a catalyst for this, as a decrease in the new supply would rise the price. Some other events that may be influencing the higher price volatility are hard forks creating new breakaway currencies, regulatory crypto exchange-traded funds, or hacks of exchanges.
Silvergate Is Expanding Its Line of Products
Silvergate is planning the launch of a crypto lending product for the fourth quarter. It wants to provide custody and settlement services for digital assets and fiat currencies by June 2020. It’s making the most profits from trading and transaction fees, relying on investments from deposits.
The lending product should be therefore, launched this year and included in the Silvergate Exchange Network (SEN), their payment system for cryptocurrency exchanges. The bank’s big clients are expected to fund the network as they would be able to borrow from the bank fiat currencies by using bitcoin holdings for collateral.
Custody and Settlement Services to be Introduced 6 Months after the Launch of the Lending Product
Silvergate has made the decisions of adding custody and settlement services 6 months after the lending product is going to be launched. There are a few New-York-chartered companies like Gemini, Coinbase, Paxos, Fidelity Digital Asset Services, and Bakkt that activate in the crypto market, but Silvergate is one of the few US financial institutions banking crypto.
The others are Signature Bank, Metropolitan Commercial Bank and Cross River Bank. 60% of Silvergate’s clients are from US, while the rest 40% from other countries.
Silvergate Bank was founded in Southern California as a traditional commercial bank. In 2013, it started servicing crypto exchanges, institutional investors and startups. Lane said it has decided to enter the crypto market because it’s looking for new sources for deposits.
According to the bank’s IPO filing, its deposits have doubled in 2017, while its client base increased by more than three times ever since it started servicing crypto-based businesses. Before the IPO, the bank raised $114 million from private placement.
Nine months after February 2018, it sold its San Marco, California, retail branch together with its Seattle-based HomeStreet commercial bank. The sale was made in March 2019 and included the reduction of $74.5 million in deposits, plus $115.4 million in loans. The IPO filing shows that the pre-tax gain was $5.5 million. Lane stated the sale was made to move the bank’s forward with crypto businesses and to pay for investments in that direction.
The Silvergate shares are listed on the New York Stock Exchange as SI and had an initial public offering of $40 million on November 7. The bank’s IPO was completed on November 12, raising about $10 million from the issuance of 824,605 common shares. Shareholders got $30 million from the sale of 2.5 million shares. Lane said,
“We know that the last time there was a big bull market in crypto, our deposits surged and that's part of the reason to go public, in case we have another big growth spurt and we need capital,”
“Now that we're public, we have more efficient access to capital to support our growth.”
The bank’s shares started on the NYSE at $12, while on Wednesday, they were trading at $16.35.