How did crypto company Silvergate buck the 2019 IPO trend by posting a 28% gain since launching on the stock market?
This year was marked by a string of IPO failures with more than half of stock market debuts now trading below their initial offering. Uber and Lyft are the headline casualties, but a number of unicorns got slaughtered in 2019 including Peloton (the third-worst debut of the last decade) and Slack (trading at almost half its IPO price). And who could forget WeWork, the hyped-up debut that never happened.
Launching an IPO in 2019 was a dangerous game with only a few winners. Among those winners, surprisingly, is a cryptocurrency company: Silvergate.
Silvergate debuted in November and is since up 28% from its IPO price. That’s no easy feat considering the cryptocurrency market itself has taken a nosedive in the same period. How did this stock buck the trend?
Silvergate is a banking service geared towards the cryptocurrency industry. At the time of filing its IPO documents, it boasted 542 cryptocurrency-related clients – a 122% year-on-year increase. The banks was also in the process of onboarding a further 232 clients.
In other words, Silvergate is the banking ecosystem for the digital asset economy. It provides a crucial service as many cryptocurrency companies have been refused banking at traditional institutions.
It’s clients include most of the leading cryptocurrency exchanges, including Gemini and Circle as well as investment firms like Polychain Capital.
In simple terms, Silvergate is the heart of the crypto economy. Currently banking almost $1.2 billion deposits, the company believes the total addressable market is “approximately $30 to $40 billion” in dollar deposits.
Not only has Silvergate bucked the IPO trend, the stock has outperformed the cryptocurrency market itself. In the month since the company’s debut, the stock has risen 28% while bitcoin has slumped 20%.
The reason for this likely comes down to Silvergate’s largest clients: exchanges. Cryptocurrency exchanges can make money even in a bear market through trading commissions and fees.
Interestingly, the company has also outperformed cryptocurrency mining stocks. As Su Zhu, CIO at Three Arrows Capital, pointed out, mining stock Canaan has plunged below its IPO price while Silvergate climbs.
While Silvergate has bucked the IPO and crypto trends in the last month, it’s still a risky investment. Speaking on the On the Brink podcast, CMS Holding’s Dan Matuszewski explained how Silvergate could theoretically bring down the whole market.
If there’s one single existential risk to crypto beyond any tech reason right now it’s Signature and Silvergate Bank. And probably Silvergate because they’re the biggest one banking all these guys. Like if Silvergate shuttered tomorrow for God knows what reason that would be a huge problem for crypto. People don’t realise how much money’s flowing through that thing and how many assets are effectively custodied by the desks that are sitting there. It would be real, real ripple effect.
For now, Silvergate remains a rare high-performing anomaly in both the traditional IPO market and the cryptocurrency market.
Last modified: March 4, 2021 2:40 PM