Silvergate Capital, a crypto-focused bank, believes that the bear market affecting the whole crypto industry is not over yet. Furthermore, their CEO feels the effects could get adverse in the coming quarters, yet he is upbeat on crypto lending. Given the broader global economic reset, investors shouldn’t compare the present price decline to earlier ones. Digital assets have dropped in line with macro trends like rising rates and inflationary pressures.
Due to the crypto downturn, analysts expected a dismal quarter for various crypto enterprises, from exchanges to miners. Yet, Silvergate’s second-quarter earnings defied expectations. The second quarter of 2018 saw a 34% increase in transfers of U.S. dollars. Also, net income increased by 85% year over year, according to The Silvergate Exchange Network (SEN), a fiat on-ramp for bitcoin markets.
Silvergate stuck to what it is most knowledgeable about and avoided FOMO. Thus, it was able to avoid the traps of the bear market. Lane said they strive to stay in their lane and not follow the current fad. They focus on what they do well and on solving problems for their consumers. According to Canaccord Genuity, risk management was a significant factor in Silvergate’s outcomes. Despite significant volatility in the current price of cryptos, a risk management program led to no loan writedowns.
The recent failures of financial organizations connected to cryptos are not stopping Lane. He is still in favor of adopting bitcoin for its lending program. Most recently, Silvergate used its SEN Leverage program to provide MicroStrategy with a $205 million term loan. The purpose was to allow the business analytics company to buy extra bitcoin. The recent crypto meltdown, according to Lane, was an excellent stress test for Silvergate. It proved its ability to resist volatility in its lending business model.
He added that Silvergate developed the lending platform to understand that it would come with volatility. Silvergate demands excessive collateralization. Borrowers have three options if market conditions worsen. Make further bitcoin pledges, complete loan payments total or let Silvergate decide whether to sell some of their bitcoin.
Silvergate acquired the stablecoin project, Diem, from Meta Platforms. The project was first introduced as Libra back in June 2019. The assets obtained from Diem certainly provide a good base for a stablecoin for e-commerce.