While it’s still early days in terms of broader digital asset adoption, the growth outlook for Silvergate Capital (SI) as a “pure-play crypto banking solution” is very limited in the current crypto winter environment, Wells Fargo said in a research report Thursday.
Wells Fargo downgraded its rating on the stock from overweight to underweight and cut its price target to $70 from $115, sending the shares down 5% to $74.95 early Thursday.
Silvergate is one of the most asset-sensitive banks, but deposit outflows due to weaker crypto prices more than offset the benefits from higher interest rates, a Wells Fargo team of analysts led by Jared Shaw wrote.
The crypto bank’s growth plans rely on a recovery in cryptocurrency markets or rapid stablecoin adoption, the note said, and its two main initiatives are the launch of stablecoin- and bitcoin-backed lending via its SEN Leverage platform.
The analysts said, however, that with stablecoin regulation taking longer than expected and little news on the bank’s planned launch, that initiative may prove to be a “significant drag” on profitability in the medium term.
Upcoming quarters will be especially challenging for the stock as greater clarity is needed on the wider economy ahead of a crypto recovery, the analysts added.
Read more: Silvergate CEO Sees More Near-Term Pain for Crypto but Still Bullish on Bitcoin Lending
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