How Silvergate Capital Shares Skyrocketed 74% Higher In July

What happened

Shares of Silvergate Capital (SI -0.25%) gained 74.3% in July 2022, according to data from S&P Global Market Intelligence. The regional bank, which became a leading provider of capital and banking services for cryptocurrency exchanges, enjoyed a modest rebound in crypto prices. Still, the main lift resulted from Silvergate’s stellar second-quarter report.

So what

First things first. Bitcoin (BTC -1.42%) prices increased by 17.6% in July while Ethereum (ETH -2.35%) posted a gain of 54.4%. These gains provided a welcome respite from the collapsing crypto prices of the spring. The upcoming Ethereum merge played a major part in these crypto-price rebounds, and digital currency traders are starting to decouple this market from the stock market. That detachment brought about a strong wave of price increases as the inflationary issues weighing on the global economy suddenly seemed less troubling.

As a significant player in the cryptocurrency industry, Silvergate benefits when business is good for crypto-trading exchanges, Bitcoin miners, and other companies in the sector with significant banking needs.

On top of that rebound trend, Silvergate published its second-quarter earnings report on July 19. Net income rose 85% year over year, earnings jumped from $0.80 to $1.13 per diluted share, total deposits increased from $11.4 billion to $13.5 billion, and several leverage-based risk metric improved. In other words, Silvergate showed a clean bill of health in a period where the crypto market had been struggling.

Now what

If the second-quarter results represent Silvergate Capital at its worst, I most certainly want to own the stock when the crypto market is healthy again. If you don’t own it yet, it’s not too late to make a move. The price cuts in the first half of 2022 were so brutal that Silvergate’s share prices remain 31% below recent highs on a year-to-date basis.

The same is true for the leading cryptocurrencies, by the way. Bitcoin is down 52% in 2022 and Ethereum is nursing a 57% price cut. These discounts include the positive effects of rising prices in July.

^SPX data by YCharts

Buying cryptocurrencies isn’t the right move for every investor, given the lack of regulation in this fledgling market. That makes Silvergate an interesting investment idea for risk-sensitive investors, adding several layers of market security based on the reporting and capitalization requirements for public companies and banks. I’m a happy Silvergate investor, ready to handle some rough roads in the quarters ahead. But, in the long run, I think we’re looking at a future giant at the crossroads of crypto-based finances and traditional banking.

Anders Bylund has positions in Bitcoin, Ethereum, and Silvergate Capital. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool recommends Silvergate Capital. The Motley Fool has a disclosure policy.