Bear Market for Digital Assets Not Impacting SEN Leverage’s Institutional Volume

Loans collateralized by bitcoin kept flowing through SEN’s virtual pipes despite a downturn in the market

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key takeaways

  • Silvergate Capital reported earnings Tuesday, with a significant uptick in deposits and volume on its exchange network
  • Despite a chill through the digital assets market, volume on SEN Leverage increased by nearly 1,000% during the last quarter

This past quarter’s violent market gyrations, which led to the price of bitcoin falling by nearly 50%, didn’t have much of an impact on demand for Silvergate’s SEN Leverage service according to comments from executives on a recent analyst call. 

Silvergate operates the Silvergate Exchange Network (SEN) which allows for instant settlement of dollar-denominated transactions. As Silvergate is the only banking partner that will work with many exchanges, SEN allows traders to send capital between exchanges instantly without using SWIFT or FedWire which are both quite slow in comparison.

SEN’s counterpart, SEN Leverage, allows clients to collateralize their bitcoin holdings for dollars should they need to cross-leverage their digital assets into other asset classes.

During its earnings call, Silvergate said that SEN Leverage reported that approved lines of credit had jumped to $258.5 million, up $196.5 million quarter-over-quarter. This isn’t as dramatic an increase as some of Silvergate’s other business lines, but it does reflect continued growth in the vertical.

“We are not really seeing a fall off in demand as it relates to our institutional investor clients,” CEO of Silvergate, Alan Lane, said during an analyst call. 

Lane said that with “prices coming down, there just has not been as much recent demand for actual borrowing.”

Ben Reynolds, Silvergate’s Chief Strategy Officer, said during the call that the bank had seen customers keeping more liquidity at Silvergate in the form of deposits than they needed to execute their trading strategies, which led to larger dollar transfers per transaction, but a fewer number of overall transfers.

When asked by analysts if the bank is considering expanding the SEN Leverage product outside of institutional investors, Lane explained that the bank is looking to “leverage the network effects of SEN and continue to press our advantage with that network instead of doing a series of one off loans.”

“That might ultimately end up being somewhat commoditized and really kind of a race to the bottom in terms of someone coming in and saying, ‘well, if you are doing that loan at 7%, we will do it at 6%,’ and it’s the same as with any type of loan product,” Lane said.

Silvergate’s stock is currently trading at $105.32, up 13% on-week.

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