BofA Initiates Coverage of Silvergate With ‘Buy’ Rating, Sees 50% Potential Upside

Silvergate Capital (SI) offers investors an alternative way to gain exposure to the growth of the cryptocurrency ecosystem without the need to actually own a digital asset, Bank of America said in a report initiating coverage of the stock with a buy rating and a $200 price target, implying a near 50% potential upside.

• The crypto bank is well positioned to benefit from the expanding use of stablecoins for payment, commerce, and remittance, following the acquisition of Diem’s assets earlier this year, analysts led by Brandon Berman wrote on Monday.
• In its capacity as a regulated financial institution, Silvergate is better prepared to “navigate the complex, and still evolving regulatory environment applicable to the digital currency industry,” the report said.
• Bank of America forecasts Silvergate to grow its balance sheet five times faster than the average bank under its coverage over the next three years. The “first mover advantage” has resulted in tremendous client growth, with close to $790 billion transferred over the Silvergate Exchange Network, its global payment platform, the report added.
• Increased institutional adoption gives Silvergate a long runway for continued client and earnings growth, it added.
• As one of the most interest rate sensitive banks in the U.S., helped by its near-zero cost deposit structure, Silvergate is expected to outperform against a backdrop where the Federal Reserve (Fed) is expected to raise rates around six times this year, the bank’s analysts said.
• Volatility in the near term is to be expected, given that the stock is highly correlated to the price of bitcoin BTC$91,725.39, but as the bank expands its products and service capabilities, the shares should trade more on fundamentals, the note added.
• Silvergate shares closed at $137.30 on Friday.

Read more: Silvergate’s Acquisition of Diem’s Assets Positive for Stablecoin Launch, Analysts Say