On the back of an unprecedented surge that saw bitcoin approach $65,000, crypto-friendly Silvergate Bank, which has major crypto exchanges Bitstamp, Coinbase, Gemini and Kraken as clients, turned in a record first quarter.
Led by all-time highs in digital currency customers, transaction counts, volume, and revenue on its 24/7 Silvergate Exchange Network (SEN), which is used by clients to fund crypto trading accounts, the bank posted a net income of $12.7 million dollars. This figure represents a 39% increase over its profit last quarter and a year-on-year surge of 189%.
SEN-sational Lending Growth
Adding to the story is the fact that SEN Leverage, a lending product first introduced in January 2020 that allows clients to borrow fiat against their bitcoin holdings, was its fastest growing Silvergate product last quarter with a total outstanding balance of $196.5 million. This progress is a critical step to serving the needs of sophisticated clients who are looking for ways to make leveraged bets in this current market under one roof.
For Silvergate CEO Alan Lane, who spoke with Forbes exclusively before the earnings release, the bank is just getting started with its lending products. In particular, he highlighted how its constitution as a bank allows it to tap readily available fiat deposits to fund these loans, rather than having to look externally.
Going All In On Crypto
To Lane, the totality of these results is vindication of a plan that the bank put into motion when it first saw the potential of bitcoin years ago. He said, “We’ve been focused for the last three or four years on transitioning Silvergate to more of a pure play [for the crypto industry].”
This transition is reflected in Silvergate’s balance sheet. According to the earnings report, deposits from digital currency clients (such as exchanges, institutional investors, and other crypto-focused firms) comprised 98% of its total deposit base. Additionally, fee income from these customers amounted to 88% of its total non-interest income.
In addition to strong financial results, Silvergate has also been reaping the rewards of this approach in its trading performance (NYSE: SI). The stock is up 87% year to date and 841% over the past 12 months. It has trounced both regional and national banking indexes, as well as the S&P 500 over each of these time periods.
What Comes Next
In our conversation, Lane also highlighted some future opportunities that he sees for the bank. In particular, he singled out stablecoins, which are continuing to see hyperbolic growth with a total market capitalization approaching $70 billion. However, he is not primarily focused on the usage of stablecoins for trading, saying that “Where we really see the benefits of stablecoins for the broader world is around commerce, cross border payments, and remittances.” Lane mentioned that Silvergate is working “feverishly” with a number of potential partners, but was not ready to disclose names.
Additionally, although the bank does have a crypto-custody offering, Lane said that it is more focused on creating a network of custodians so that no matter where a client holds its bitcoin, they can take out loans against the assets.
Speaking of assets, right now clients can only borrow against bitcoin, something that is unlikely to change in the near future. However, next on the list could be ether, the native crypto to Ethereum, provided its planned upgrade to a newer version with higher transaction throughputs over the next year or two goes according to plan. Lane said that, “In order for us to be comfortable lending against assets, we have to not only feel comfortable custodying the asset, but there has to be a deep pool of liquidity. Right now, the closest one to Bitcoin would be Ethereum. However, right now they’re in the process of going through a change in their protocol from proof of work to proof of stake. We certainly want to wait and see how all that plays out before we start lending our depositors funds against a protocol that is undergoing such a major change.”