The timing really wasn’t great. On Feb. 22, crypto-friendly bank Silvergate Capital trumpeted that its stock was up 120% so far this year and 1,300% in the 15 months since it went public, the day before a broad stock market downturn focused on the tech sector wiped nearly 30% off of its share price in just a few hours. It’s clawed back about a third of that, so far this morning.
That said, it doesn’t change the basic point of the news, which is that Silvergate, one of the first banks to embrace crypto, has been on tear thanks to its decision to accept cryptocurrency customers when no other banks would.
The news also came on the same day that Square upped its Bitcoin investment from $50 million to $220 million and MicroStrategy bought another $1 billion worth.
According to a Feb. 22 CNN report, Silvergate Capital’s shares had climbed 13x since first going public in November 2019. The bank’s CEO, Alan Lane, told CNN that the institution has always bet on crypto assets, providing services that facilitate crypto transactions, taking deposits, and making loans for firms in the industry.
Lane explained that this new kind of bank needs to be active 24/7 since—unlike fiat currencies, bonds, stocks and other traditional financial assets—the trading of Bitcoin (BTC) never stops. He said:
“We started with crypto deposit accounts for customers and quickly learned that companies need more help beyond traditional 40-hours-a-week banking… We needed to build a bank for a 24/7 digital world.”
Silvergate Capital currently holds about $5 billion of crypto-backed deposits, but its biggest selling point is its Silvergate Exchange Network, which lets its corporate customers transfer dollars to crypto exchanges at any moment. Lane explained that this significantly decreases friction.
“There is a lot of friction in banking. Wire transfers can be time consuming,” he said. “The beauty of SEN is that once a deposit account is open, you can transact with others in a… seamless method and transfers are instant.”
Many of the bank’s customers are institutional investors and crypto firms, since Silvergate Capital does not allow individual retail customers hold crypto in their accounts. Among the bank’s clients are leading U.S. cryptocurrency exchange Coinbase and fintech giant Square.
Traditional finance and the cryptocurrency industry are slowly fusing into one single entity. The United States’ oldest bank, BNY Mellon, recently announced a crypto custody service just as credit card giant Visa announced the integration of digital assets into its payment processing systems.
While traditional finance moves in to meet crypto, cryptocurrency companies are approaching traditional finance as well. In late September, cryptocurrency exchange Kraken won a United States bank charter approval in Wyoming. In December, crypto bank Cashaa opened its first physical branch in India despite government hostility to the industry. And last month, crypto custodian Anchorage was granted United States federal bank status.