The world’s largest asset manager, BlackRock, disclosed a significant position in Silvergate Capital, the beaten-down banker to the cryptocurrency industry whose share price has been a high-profile casualty of the crypto meltdown. The disclosure may have caused a significant move in Silvergate stock Tuesday—one that doesn’t reflect the ordinariness of BlackRock’s filing.
In a filing with the Securities and Exchange Commission, BlackRock disclosed a 7.2% stake in Silvergate (SI), representing 2,285 shares purchased on Dec. 31.
It makes BlackRock one of the bank’s largest shareholders. BlackRock, though, is one of the world’s largest index fund providers, and the disclosure almost certainly doesn’t reflect a fundamental view on the stock, but a shift in index positions or fund flows.
Once touted by Wall Street as among the best-regulated ways to play the once-booming crypto industry, Silvergate has been hammered by the digital asset bust, with the shares down 86% over the past year—falling much more than even Bitcoin.
A federally insured bank, Silvergate positioned itself as a key service provider to crypto exchanges and investors and its stock was a major beneficiary of the 2020 bull run in Bitcoin.
But the crash in token prices since late 2021 and a number of high-profile bankruptcies—including one of its major customers, FTX, amid allegations of fraud—have brought a string of trouble to the bank.
Silvergate has had to lay off large swathes of its staff and suspend dividends in a bid to cut costs, after reporting an eye-watering $1 billion loss in the fourth quarter as a result of losses on asset sales required to stay liquid. It has been bad news after bad news for investors in the group.
While the shares have yet to make a rebound, with the stock down in the double-digits so far in 2023, more and more losses only build on the argument that Silvergate could be a buy—if the bank is able to pull off its turnaround. A rebound in crypto markets, improving regulatory visibility, and institutional investors warming up to Bitcoin and other digital assets sure would help.
While Silvergate stock still only garners an average rating of Hold among analysts surveyed by FactSet, the average price target on the stock still implies gains of almost 20% from current levels.
Famed value investor Bill Miller recently told Barron’s that he has added to his position in Silvergate, which he noted was trading at $155 just over a year ago.
While that’s a price level Silvergate shareholders can only dream about right now, if the worst is over for Silvergate stock then somewhere higher than the low teens might soon be in sight.
by Yana Keller