California’s Silvergate Bank Bets on Higher Crypto Price Volatility

  • More capital for new products is being provided for by the Initial Public Offering (IPO) to meet rising demands.
  • Price could increase because of decreasing supply as a result of bitcoin block rewards being cut in half.
  •  Plans to launch settlement and custody services for fiat currencies and digital assets.

Silvergate CEO Alan Lane, in an interview said that more capital for new products is being provided for by the Initial Public Offering (IPO) to meet the rising demands from institutions for lending cryptocurrency and providing deposit solutions.

“We don’t predict when it will happen but we know that there might be an additional period where the volatility drives up volumes, and want to make sure that we can help our customers when that happens,”

he said while also mentioning that more price differentials and profit opportunities could be brought to the crypto currency market through greater price volatility.

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With the oncoming bitcoin block reward being cut in half next year, price could increase as a result of the decrease in supply. Other things that could affect the cryptocurrency ecosystem are regulatory approval of exchange-traded funds, hard forks that create new breakaway currencies such as bitcoin cash, or high-profile hacks of crypto exchanges.

To quote Lane,

“In our experience, it’s not so much about the absolute price of the asset, but rather the volatility in the price where we actually see potential changes in the behavior of some of our customers.”

Silvergate bank also has short term plans for 2020, wherein they are planning to launch a cryptocurrency lending product in the fourth quarter and settlement and custody services for fiat currencies and digital assets by June 2020.

Transaction fees from trading and yields on the investments made using client deposits are two of its biggest profit generators. The fresh capital will therefore be invested in the form of new products in these specific areas.

The new lending product would be a part of the Silvergate Exchange Network (SEN) which is a payment system designed for crypto exchanges and their big clients to transfer funds within the network.

Clients will then be able to use bitcoin holdings as a collateral while borrowing fiat currency. To meet the demands of its clients they are planning to launch the settlement and custody services only six months after introducing the lending product.

Lane says,

“We’ve already been working with the New York DFS, and submitted an application with them to form a New York licensed trust company for our settlement and custody services.”

California based Silvergate bank is only one of four American banks that are banking crypto institutions the others being Metropolitan Commercial Bank, Signature Bank, and Cross River Bank. Its clientele consists of 60% American clients and 40% international entities.

It started in 1988 as a traditional commercial bank but began engaging with crypto exchanges, startups and institutional investors in 2013. The reason they entered the crypto market was because they were looking to diversify their deposits as their loans were growing faster than their deposits.

According to their IPO filing the bank has almost doubled its deposits since the introduction of crypto banking and the client base has also tripled ever since. They raised a $114 million through a private placement in February 2018.

 “We’re essentially bringing the legacy banking system that only operates 40 hours a week during business hours into the 24/7 crypto markets that never sleep.” 

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Prerna Sengupta
Prerna Sengupta is a writer for Thecoinrepublic. She is a law student at NALSAR University of Law, Hyderabad. She is interested in Tech Law and is especially keen on cryptocurrency, blockchain, and Bitcoin. She hopes to pursue this field in the future as a lawyer.

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