The Bitcoin price boom has led banks to eye the cryptocurrency. Bank of California, for example, now accepts cryptocurrency deposits and distributes bitcoin-backed loans.
Launching CNN, Tuesday (23/2/2021), the shares of Silvergate Capital (SI), a bank that specializes in cryptocurrencies, have risen more than 120% so far this year. If calculated from going public in November 2019, it has increased by almost 1,300%.
More and more financial services companies, such as Bank of New York Mellon (BK), Visa (V), MasterCard (MA) and BlackRock (BLK), are starting to embrace Bitcoin. But you could say that no bank has gone completely into crypto like Silvergate. CNN Business spoke with Silvergate CEO Alan Lane about the Bitcoin banking business and what he predicts next for the crypto world.
Silvergate decided to venture into cryptocurrency after Lane personally invested in Bitcoin for the first time in 2013.He realized there was a need for financial institutions that could focus on cryptocurrency transactions, including taking deposits and making loans.
Such a bank should be able to serve clients at any time, he said, because bitcoin, unlike other government-backed currencies, stocks, bonds and financial assets, trading in bitcoin never stops.
"We started with crypto deposit accounts for customers and quickly learned that companies needed more help beyond traditional banking 40 hours a week," Lane said.
Why are banks in the US getting attracted to Bitcoin?
Silvergate currently has about US $ 5 billion in cryptocurrency-backed deposits. But the bank's biggest selling point for customers is the Silvergate Exchange Network (SEN), which allows clients to transfer dollars to a cryptocurrency exchange at any time.
"The advantage of SEN is that once a deposit account is opened, you can transact with other people with a seamless method and instant transfer," he added.
Silvergate announced in October that it has served transfers of more than US $ 100 billion since SEN began operations in 2017.
Lane said their bank's customers are mostly institutional investors and other companies doing business with bitcoin and other cryptocurrencies.
Silvergate's clients include Coinbase, a bitcoin wallet company that plans to go public later this year, and Square (SQ), a payment giant led by Jack Dorsey that allows customers to buy and sell bitcoin.
The company has also expanded its lending business to take advantage of more financial companies looking to invest in bitcoin. The bank launched a product called SEN Leverage last year, which provides investment companies with loans that are guaranteed by bitcoin.
"Think of it like a margin loan: Customers deposit bitcoins and we then lend them dollars, which many of these clients use to buy more bitcoins," Lane said.
That all makes Silvergate stock a kind of proxy for bitcoin. Stocks tend to go up when bitcoin goes up and vice versa stocks will fall when the crypto price goes down. That's fine for corporate stocks too these days, but it's clear that Silvergate is much riskier than your average bank stock. Silvergate shares were down 4% on Monday, for example, as bitcoin (XBT) price slumped.
