Let’s start by looking at the graph:
Like several companies, it has already erased all its rise since the pandemic and is trading at levels close to its IPO. If we value it in terms of Market Cap, the drop is incredible: in November 2021 it was worth US$6.4 billion. Now? Only u$s 400 M.
What happened to those $6 billion that was lost? Where did they go? They didn’t go anywhere. It is simply value destruction. Before, the market assigned such a valuation, now it assigns a much lower one.
History
Silvergate Bank was founded as a lending association in 1988. In 1996, it was recapitalized and reorganized into a small bank, with just 3 branches in California.
The big leap came from 2013, when its CEO personally invested in Bitcoin and Silvergate launched an initiative to start serving cryptocurrency customers. After this, the bank grew rapidly, reaching $1.9B in assets and 250 clients by 2017, in the midst of a crypto rush.
Taking advantage of this context, the company launched its IPO in November 2019, at a price of US$13 per share. During 2020 and 2021, the crypto world accelerated and Silvergate shares reached as much as $239, which implied a rise of 1,700%. Was that price logical? When there is excessive euphoria, there is no logic that is worth it.
It is worth clarifying that its shares have fallen by more than 95%, even being below its IPO value. Total destruction of value.
What happened to such violence? Let us remember that, in just a decade, the bank went from serving small companies to going public, with a reputation for providing banking services to important crypto clients such as Coinbase, Gemini Trust or FTX and Alameda Research, the two firms of Sam Bankman. -Fried that exploded spectacularly last month.
Following the FTX bankruptcy, Silvergate investors were unable to withdraw their funds, creating a crypto corral. What measures did the company take? The bank sold $5.2B in assets to maintain liquidity, losing $718M in the process. This loss exceeds the company’s earnings since 2013. Additionally, cryptocurrency-related deposits had fallen 68% in the fourth quarter of last year.
Not only that, but Silvergate also laid off about 200 employees, which is 40% of the total. In addition, the bank also canceled a plan to launch its own digital currency project, writing off almost $200M that it had earmarked for Facebook to buy the technology.
Do I buy or sell?
Silvergate is down 84% in the last three months. As a general rule, you shouldn’t try to catch falling knives. Is it going to stop the fall here? No one knows, but it wouldn’t be wise to go shopping now either.
The situation of the company is very worrying. Can you have rebounds? Clearly, and they can be highly profitable. But the risk is enormous, so it is best to stay outside.
The current situation is very challenging: record inflation, rising interest rates and stocks suffering huge losses. That’s why I prepared a report with 3 ideas to take advantage of the context. I really recommend it. You can download it here: Financial Letter – Actions.
Source: Ambito
David William is a talented author who has made a name for himself in the world of writing. He is a professional author who writes on a wide range of topics, from general interest to opinion news. David is currently working as a writer at 24 hours worlds where he brings his unique perspective and in-depth research to his articles, making them both informative and engaging.
