Silvergate decided to venture into cryptocurrencies after Lane personally invested in bitcoin for the first time in 2013, he said. He realized there was a need for a financial institution that could focus on the “plumbing” of cryptocurrency transactions, taking in deposits and making loans.
Such a bank would have to be able to serve clients at any hour of the day, he said, since bitcoin -— unlike government-backed currencies, stocks, bonds and other financial assets — never stops trading. You can’t have traditional banking hours for a non-tradtiional asset.
“We started with crypto deposit accounts for customers and quickly learned that companies need more help beyond traditional 40-hours-a-week banking,” Lane said. “We needed to build a bank for a 24/7 digital world.”
Silvergate currently has about $5 billion in crypto-backed deposits. But the bank’s biggest selling point for customers is its Silvergate Exchange Network (SEN), which lets clients transfer dollars to digital currency exchanges at any time.
“There is a lot of friction in banking. Wire transfers can be time consuming,” Lane said. “The beauty of SEN is that once a deposit account is open, you can transact with others in seamless method and transfers are instant.”
He noted there is also “more liquidity since the crypto markets are active on nights and weekends while the traditional banking system is closed.”
Customers have responded to that. Silvergate announced in October that it had done more than $100 billion in transfers since it started the SEN in 2017.
Lane said the bank’s customers are primarily institutional investors and other firms doing business in bitcoin and other cryptocurrencies. Customers can’t, as individuals, set up an account at the bank for their bitcoin or other digital assets.
Lending to customers that want to buy more bitcoin
The company has also expanded its lending business to take advantage as more financial firms are looking to invest in bitcoin. The bank launched a product called SEN Leverage last year, which gives investment firms bitcoin-collateralized loans.
“Think of it like a margin loan: Customers deposit bitcoins and we then lend them dollars, which many of those clients use to buy more bitcoin,” Lane said.
This all makes Silvergate’s stock kind of a proxy for bitcoin. Shares tend to go up when bitcoin does and fall when the crypto’s price dips. That’s been good for the stock lately but it’s clear that Silvergate is much riskier than your average bank stock.
“It’s been a very solid area of growth,” said Eric Raymond Howell, Signature Bank’s senior executive vice president of corporate and business development, on the bank’s most recent earnings conference call. “We’re very excited about what’s happening there. It’s obvious that digital assets and cryptocurrencies are not going away.”
Signature Bank CEO Joseph John DePaolo added that the company is “staying ahead…