By
Temitope Olatunji
April 26th, 2024
Analysts at Wells Fargo recently made a bearish call on Silvergate shares, downgrading it from overweight to underweight.
Shares of crypto bank Silvergate Capital (NYSE: SI) fell after receiving a rating downgrade by Wells Fargo. According to analysts at the multinational bank, the ongoing crypto winter is limiting the crypto bank’s growth potential.
The Wells Fargo bearish call on Silvergate shares saw the crypto platform’s stock go from overweight to underweight. Correspondingly, Wells Fargo also slashed the company’s price target from $115 to $70, which sent its shares sliding 5% to $74.95 early Thursday.
In a Thursday research report, Wells Fargo conceded that broader digital asset adoption is still in its early days. However, the banking giant also stated that Silvergate’s growth outlook as a “pure-play crypto banking solution” currently appears restricted. In addition, analysts also stated:
“While crypto was a leading indicator for the current recessionary environment, we do not believe it will be the leader on the way to future recovery, which will likely mean continued balance sheet pressure.”
Insight into the Wells Fargo Silvergate Downgrade
According to Wells Fargo analysts, Silvergate, like most banks, has recently benefitted from higher interest rates. This is also due, in part, to the fact that the versatile bank operates as one of the most asset-sensitive financial institutions. However, deposit outflows caused by weaker crypto prices have also offset the benefits of higher interest rate yields.
Silvergate’s growth plans hinge on a recovery in the digital currency marketplace, as well as rapid stablecoin adoption. The crypto bank’s two main initiatives are the launch of a lending scheme backed by stablecoins and Bitcoin (BTC).
Silvergate seeks to carry out its lending initiatives via its SEN Leverage platform. However, the digital currency-driven bank is also currently experiencing some headwinds affecting this plan. For instance, analysts say that the protracted process involved in institutionalizing stablecoin regulation could adversely affect Silvergate’s projected profitability. In addition, analysts believe that the lack of news on the bank’s planned lending scheme may be a “significant drag” in the long term.
Analysts also added that Silvergate stock will experience more challenges in upcoming quarters. This is because there is a need for greater clarity on the broader economy ahead of a crypto recovery. Lead analyst Jared Shaw stated:
“We view Silvergate as having more downside risk with greater uncertainty around near-term catalysts for increased crypto valuation and institutional adoption. We believe these next two quarters will be particularly challenging, as we believe greater clarity is needed on the broader economy ahead of a crypto recovery.”
Which Way for Silvergate Stock?
The bearish shift in Silvergate stock may be surprising to some because Wall Street remains upbeat on the stock. For example, seven of nine analysts polled by FactSet rated it a Buy with an average target higher than $120. Furthermore, Barron’s recently mentioned Silvergate as an opportunity to invest in crypto-focused platforms rather than the digital assets themselves.