Crypto bank Silvergate could jump 50% as institutional adoption and stablecoin use provides a 'long runway' for growth, Bank of America says

• Silvergate Capital stock holds the potential to rise nearly 50% from current levels, said Bank of America.
• The bank put a $200 price target on the shares, which closed Monday at $143.67.

Silvergate Capital has a "first mover advantage" that could help boost its share price by half, Bank of America said Monday in setting a $200 price objective on the crypto bank.

"We believe Silvergate offers investors an alternative way to gain exposure to the growth of the digital asset ecosystem, instead of owning an actual digital asset, such as a bitcoin and ethereum," Bank of America said in note initiating coverage of Silvergate Bank's parent company with a buy rating.

Silvergate Capital has experienced "tremendous client growth, benefitting from its first mover advantage, while also generating a profit," research analyst Brandon Berman said in foreseeing the stock's rise to $200 a share. Silvergate Capital shares closed at $137.30 on Friday, implying a potential 45.7% increase in shares of the La Jolla, California-based company.

Silvergate Bank runs Silvergate Exchange Network, or SEN, that allows digital currency and institutional clients to send US dollars and euros between their Silvergate accounts and the accounts of other Silvergate customers. Its clients include cryptocurrency exchanges Coinbase, Binance and Gemini as well as stablecoin issuers Circle and Paxos.

"Since 2018, Silvergate has more than doubled its client base while USD transfers over the SEN increased 5-fold in 2021," said Berman. "Going forward, earnings growth should benefit from management's plans to expand the bank's products and services, including issuing its own stablecoin later this year."

Silvergate Capital in January paid $182 million in cash and stock to purchase the assets and intellectual property of Facebook's Diem cryptocurrency venture. Facebook — now Meta — aimed for Diem to serve as a stablecoin alternative to fiat money, backed by a mix of currencies and government debt, but regulatory pressures stalled its progress.

Silvergate Capital is "one of the best-positioned companies to benefit from the expanding use of stablecoin for payment, commerce, and remittance," following the Diem deal, said Berman. As well, Silvergate as a regulated financial institution can navigate the "complex, and still evolving" regulatory environment surrounding the digital currencies industry.

Increasing institutional adoption provides the company "a long runway" for continued client and earnings growth, said BofA. It forecast Silvergate Capital's earnings to growth at a 70% compound annual growth rate over the next three year. That would be nearly three times that of high-growth peers, it said.

Silvergate Capital's shares are highly correlated to bitcoin's price so near-term volatility is likely to be expected, said BoFA.

"However, as SI further expands its product and service capabilities, we expect shares to trade more on fundamentals."