shares of Silvergate Capital (SI 12.12%) is up 10.1% as of 3:05 am ET on heavy trading volume. The jump was a welcome break from Silvergate’s bearish price trend over the past few weeks as the crypto-friendly bank suffered from the aftermath of the FXT crypto exchange’s financial meltdown. FTX-related concerns drove Silvergate shares down 26% between Nov. 7 and Tuesday’s closing bell. Some of those dark clouds cleared on Wednesday.
The 12% drop in Silvergate prices last Friday began after institutional crypto trading service FalconX halted its use of the Silvergate Exchange Network (SEN) “out of caution.” Investors feared other crypto exchanges would follow suit, potentially damaging the SEN platform and triggering a bank run on Silvergate.
Today, FalconX reassessed the situation and concluded that SEN is a safe place to do business. Therefore, the exchange is trading again as usual on the Silvergate platform.
FalconX said the faltering Silvergate relationship “consistent with our standard process” at a time of financial stress. “Concerns are over,” and it’s time to return to normal operations — which includes relying on Silvergate’s trading network to settle crypto-based transactions against fiat currencies.
Silvergate’s return to FalconX favor comes as no surprise given the bank’s limited exposure to direct financial pain from the FTX scandal. As a Silvergate shareholder, I am still pleased to see Silvergate’s customers agree with my analysis of the company. It is a vote of confidence in Silvergate’s tax base and processes.
Today’s boom is far from a full recovery. Silvergate’s shares are still down 86% over the past year, and the stock trades at just 4 times free cash flow. It’s a bargain, and I might snag a few more shares while the fire sale continues (but not right away because of The Fool’s disclosure policy).
Anders Bylund holds positions at Silvergate Capital Corporation. The Motley Fool recommends Silvergate Capital Corporation. The Motley Fool has a disclosure policy.