Crypto Bank Silvergate Capital Receives Bullish Rating from Wells Fargo

Silvergate Capital, a crypto state-chartered bank based in California, has received a bullish rating from Wells Fargo, which initiated coverage on the digital asset company with an overweight rating based on rising interest rates and prospects for further growth in its exchange network.

In a note, Jared Shaw, a Wells Fargo analyst, stated that Silvergate provides an opportunity for investors. The report further mentioned that the ongoing institutional adoption of cryptos and product innovation should help maintain Silvergate Capital’s (SI) growth profile.

Shaw wrote in a note that the current bear market makes an attractive entry point for institutions investing in cryptocurrencies. “As rates rise, higher spread income will come from a zero-cost deposit base, and further growth in SEN Leverage and the rollout of an SI-issued stablecoin payments network represent future opportunities,” the report stated.

Wells Fargo mentioned that the market is in the early stages of cryptocurrency and blockchain adoption. The note said that Silvergate offers a regulated and FDIC-insured platform for investors looking to on-ramp and off-ramp U.S dollars into the digital asset ecosystem.

The analyst pointed to Silvergate’s (SI) as the “biggest driver of deposits” and digital customer growth, as its client base has been growing at a 35%-40% rate year on year since 2019. The note further pointed out that Silvergate has developed a strong network impact via its Silvergate Network (SEN), which is used by some of the leading exchanges and institutions in the digital asset space. The report also stated that Silvergate plans to launch its own U.S.-based stablecoin payments platform late this year, unleashing new potential revenue opportunities.

The note stated that it “should drive much of the bank’s near-term profitability, as 77% of assets are securities (55% floating) and the loan book is also heavily floating-rate,” the note stated.

Wells Fargo’s view contrasts with its peers like Morgan Stanley, which gave Silvergate an equal weight rating last week.

Bitcoin Crashes Again

Wells Fargo’s ‘BUY’ rating for Silvergate comes despite the renewed crypto crash triggered by crypto lending platform Celsius’ pause on all withdrawals, swaps, and transfers between accounts due to “extreme market conditions.” Shares of Silvergate dropped more than 17%, and other crypto-focused stocks such as MicroStrategy and Coinbase collapsed during premarket trading on Monday as Bitcoin price plunged below $24,000 per coin.

Three weeks ago, the crypto market saw another worse selloff, exacerbated by rising interest rates and TerraUSD losing its peg to $1 and eventually leading to the collapse of both the stablecoin and Terra (LUNA).

Volatility continues to be the norm in crypto coins, and the latest fall witnessed on Monday is another reminder of that. But what is being done by payment systems and digital projects will continue to stabilize the market long term.

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Fitch lowers El Salvador’s rating due to Bitcoin adoption

El Salvador faces another whipping from a traditional finance firm for its “forbidden” love for Bitcoin (BTC). 

American credit rating agency Fitch Ratings lowered El Salvador’s long-term Issuer Default Rating (IDR) from B- to CCC, mentioning “policy unpredictability” and the “adoption of Bitcoin as legal tender” as some of the factors that led to the downgrade. 

Apart from these, the statistical rating organization explained that reliance on short-term debt, an $800 million Eurobond payment due in January 2023, and a high fiscal deficit gets in the way of a better rating for the country. 

Additionally, El Salvador’s increased short-term debt is perceived by Fitch to cripple the government’s ability to pay its overall debts, and this expands the risks of a roll-over. With nearly $1.3 billion due in August, September, and October, Fitch mentions that financial constraints will be more difficult for the country to deal with. 

According to Fitch, the country also faces increased risks from “high and growing financing needs” in the coming years. The firm mentions that the country using BTC as legal tender contributes to uncertainty on a potential program from the International Monetary Fund (IMF) that could provide the financing that the country needs in 2022-2023. 

The country’s rating can still go up in time if it meets Fitch’s criteria, including consistency in settling debts by “unlocking predictable sources of financing” and a fiscal adjustment focusing on debt sustainability. 

Related: IMF urges El Salvador to remove Bitcoin’s status as legal tender

Meanwhile, El Salvador President Nayib Bukele recently predicted that a BTC price increase might come very soon. Citing the number of millionaires globally, the president says that if they decide to own at least 1 BTC, there won’t be enough Bitcoin for all of them. 

Back in January, Fitch Ratings issued a warning to energy suppliers across the United States regarding crypto miners. According to the firm, not many states are capable of supplying the energy needs for mining. The company adds that mining operations are price sensitive and may be shut down when profits decline.