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Coming into the week, crypto-related stocks such as Coinbase had been on a tear, as the cloud of the FTX collapse began to dissipate slowly.
Thursday evening, crypto markets spiked lower, led by Bitcoin. In about a half hour, Bitcoin cratered by 5% or $1200, wiping out more than $20 billion in market cap.
Silvergate Causes Skittishness
Despite the recent wave of optimism, Silvergate Capital, a crypto-centric bank, is causing skittishness once again in the crypto world. In our recent piece “Crypto Contagion: Avoid these 3 Crypto Stocks Until the Dust Settles” we highlighted some of the potential concerns surrounding Silvergate. In recent months Silvergate has seen its reputation diminish and its financial picture worsen rapidly as investors mull over just how much exposure the company had to the doomed crypto broker FTX.
Silvergate’s leverage is increasing dramatically. The crypto bank, which has been fighting to survive after a “bank run” has received intense scrutiny from short seller Marc Cohodes. Cohodes is best known for his short-selling prowess and ability to conduct “deep dives,” expose frauds, and profit handsomely. Though Silvergate was having a rough year already, things got worse this week after the company delayed filing its 10-K. Shares dropped 58% and are down 94%.
The implications of a total collapse of Silvergate are unknown – however, they exist in one obvious form. A failure would further damage the industry’s already damaged reputation and potentially lead to further crack-downs from regulators. Microstrategy, a company known for taking on “a Bitcoin Standard,” is also under the magnifying glass because it has taken on hundreds of millions of dollars in loans from Silvergate to acquire Bitcoin.
Thursday afternoon, Microstrategy’s Michael Saylor did his best to quell investor concerns by tweeting a statement from Microstrategy that read, “We have a loan from Silvergate not due until Q1 ’25. There are market concerns re SI’s fin. condition. For anyone wondering, the loan wouldn’t accelerate b/c of SI insolvency or bankruptcy. Our Bitcoin collateral isn’t custodied w/ SI and we have no other financial relationship with SI.”
Takeaway
Crypto markets have shown resilience in 2023 amid the ugly backdrop of the FTX debacle and the investigation into its founder Sam Bankman Fried. However, the news from Silvergate Capital illustrates that news-driven “tape bombs” are still a tangible reality for crypto investors. If crypto can move past roadblocks such as FTX and Silvergate, the rewards for investors are potentially fruitful. With that said, risk management is paramount in the short term. Prospective investors should acknowledge the speculative nature of the space and position themselves accordingly.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Investment Ideas feature highlights: Coinbase, Silvergate Capital and Microstrategy
For Immediate Release
Chicago, IL – March 6, 2023 – Today, Zacks Investment Ideas feature highlights Coinbase (COIN - Free Report) , Silvergate Capital and Microstrategy (MSTR - Free Report) .
Silvergate Swoon: "Crypto Bank" Shakes Crypto Markets Overnight
Crypto Contagion Rears Its Ugly Head Once Again
Coming into the week, crypto-related stocks such as Coinbase had been on a tear, as the cloud of the FTX collapse began to dissipate slowly.
Thursday evening, crypto markets spiked lower, led by Bitcoin. In about a half hour, Bitcoin cratered by 5% or $1200, wiping out more than $20 billion in market cap.
Silvergate Causes Skittishness
Despite the recent wave of optimism, Silvergate Capital, a crypto-centric bank, is causing skittishness once again in the crypto world. In our recent piece “Crypto Contagion: Avoid these 3 Crypto Stocks Until the Dust Settles” we highlighted some of the potential concerns surrounding Silvergate. In recent months Silvergate has seen its reputation diminish and its financial picture worsen rapidly as investors mull over just how much exposure the company had to the doomed crypto broker FTX.
Silvergate’s leverage is increasing dramatically. The crypto bank, which has been fighting to survive after a “bank run” has received intense scrutiny from short seller Marc Cohodes. Cohodes is best known for his short-selling prowess and ability to conduct “deep dives,” expose frauds, and profit handsomely. Though Silvergate was having a rough year already, things got worse this week after the company delayed filing its 10-K. Shares dropped 58% and are down 94%.
The implications of a total collapse of Silvergate are unknown – however, they exist in one obvious form. A failure would further damage the industry’s already damaged reputation and potentially lead to further crack-downs from regulators. Microstrategy, a company known for taking on “a Bitcoin Standard,” is also under the magnifying glass because it has taken on hundreds of millions of dollars in loans from Silvergate to acquire Bitcoin.
Thursday afternoon, Microstrategy’s Michael Saylor did his best to quell investor concerns by tweeting a statement from Microstrategy that read, “We have a loan from Silvergate not due until Q1 ’25. There are market concerns re SI’s fin. condition. For anyone wondering, the loan wouldn’t accelerate b/c of SI insolvency or bankruptcy. Our Bitcoin collateral isn’t custodied w/ SI and we have no other financial relationship with SI.”
Takeaway
Crypto markets have shown resilience in 2023 amid the ugly backdrop of the FTX debacle and the investigation into its founder Sam Bankman Fried. However, the news from Silvergate Capital illustrates that news-driven “tape bombs” are still a tangible reality for crypto investors. If crypto can move past roadblocks such as FTX and Silvergate, the rewards for investors are potentially fruitful. With that said, risk management is paramount in the short term. Prospective investors should acknowledge the speculative nature of the space and position themselves accordingly.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.