Silvergate, Signature is feeling the effects of crypto winter
Good day, and welcome to Protocol Fintech. This Wednesday, Silvergate’s earnings, Dimon’s crypto investment and more kroner for blockchain games.
Off the chain
Has anyone noticed Jamie Dimon’s habit of saying one thing about crypto and his bank doing another? Dimon recently called cryptocurrencies “decentralized Ponzi schemes.” But JPMorgan Chase just hired Aaron Iovine, most recently from now-bankrupt crypto lender Celsius, as managing director of digital asset regulatory policy, according to Bloomberg Law. It is hiring for other crypto positions. There are two logical conclusions here: Either Dimon is a hypocrite and doesn’t believe what he tells Congress about crypto, or he doesn’t really run his bank. We’ve noticed Wall Street’s growing embrace of crypto as the infrastructure matures. We wonder if part of the problem is a growing up that also needs to happen in the C-suite.
– Owen Thomas (e-mail | twitter)
Bank crypto in winter
California bank Silvergate Capital has grown its deposits and prominence considerably over the past decade by embracing crypto companies as clients. Wall Street fortunes rose along with the price of bitcoin in 2021. But deep into a crypto winter, the firm hopes to convince investors to think long-term about its potential.
Silvergate’s shares fell on Tuesday. The 20% drop in the stock followed a double whammy of bad news.
- First, the bank reported third-quarter earnings per share of $1.28, versus Wall Street expectations of $1.45, according to Zacks Investment Research. Deposits Silvergate has from digital asset companies fell to $12 billion on average during the quarter, down about 13% from the previous three months.
- There was also a decline for one of Silvergate’s key products, a network that allows crypto exchanges and other clients to instantly transfer funds. Payments on the Silvergate Exchange Network fell 41% in the quarter to $112.6 billion, which the company said was driven in part by a decline in stablecoin trading.
- On top of less-than-stellar earnings, Silvergate CEO Alan Lane also revealed on a call with analysts that the company won’t meet its goal of launching a US dollar-backed stablecoin this year due to regulatory challenges. Silvergate earlier this year bought the assets of Meta’s failed Diem blockchain project to power its stablecoin.
- Stablecoin regulation has stalled along with the rest of crypto regulation in Congress. The technology for Silvergate’s stablecoin is ready to go, Lane said, but the firm is “working with regulators and policymakers and making sure we get this right.”
Crypto-friendly banks are there for the industry’s ups and downs. Silvergate stock peaked near $220 in November 2021, which was also a crypto high.
- The company beat expectations with its second-quarter earnings, but some analysts expressed concern ahead of Silvergate’s third-quarter announcement. A downgrade from Wells Fargo two weeks ago questioned whether outflows from crypto’s decline would outweigh the benefits Silvergate would otherwise receive from rising interest rates.
- Notably, it wasn’t just bad news for crypto-serving banks. Signature Bank beat earnings estimates on Tuesday, helped by deposit growth in the non-crypto part of its business.
- Some analysts are taking a more long-term view of Silvergate. A BTIG report called the bank “undervalued, especially in relation to the company’s growth prospects given the key role that banking infrastructure plays for crypto market participants.”
- Analysts with Wedbush called Silvergate’s results disappointing, but said the firm is “well-positioned to thrive as the crypto market recovers from depressed levels, and should see revenue increase significantly in the quarters following the pilot launch of the stablecoin,” which the report estimated could arrive next summer .
So the question may be how long Silvergate has to hold out for that return. Lane, the firm’s CEO, argued that recent moves by Mastercard, BNY Mellon and BlackRock to expand crypto offerings should be taken as a positive sign. “There’s a lot of institutional adoption still to come — none of these things are live yet, they’ve all been an announcement of things to come — so we couldn’t be more optimistic about the long-term trajectory,” Lane said. “But these things take time to play out.” As the new entrants can learn, it’s not always a smooth ride.
– Ryan Deffenbaugh (e-mail | twitter)
A version of this story first appeared on Protocol.com. Read it here.
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On the money
The tax authorities want to make it easier to file crypto taxes. In a new draft of instructions, the Internal Revenue Service provided more detail on how taxpayers should list their crypto transactions, including changing the wording from “virtual currency” to “digital assets.”
About protocol: Investors continue to pour money into NFT and blockchain gaming projects.
Also about protocol: The European Commission says members should prepare to stop crypto mining in an energy crisis. The commission announced that EU member states must prepare to stop cryptomining “in case there is a need for load reduction in the electricity systems.”
JPMorgan Chase will match neobank’s early direct deposit access. The bank believes it can attract or retain customers for its Secure Banking product by adding the feature.
Goldman Sachs’ renewal is official – and tolerating consumer ambitions. Chief executive David Solomon said Goldman would focus on existing Marcus clients and market fintech products through its workplace and wealth management channels.
Fintech financing deals fell again last quarter. Global fintech venture funding fell 38% quarter-on-quarter to $12.9 billion, according to a CB Insights report.
Overheard
Do Kwon resurfaced to provide crypto podcasts and journalist Laura Shin a revealing interview. The Terraform Labs co-founder offered a bunch of not-so-convincing explanations for Shin’s pointed questions – often supported by on-chain evidence – about the messy implosion of luna and UST and Kwon’s background in the industry. Of his involvement in the failed Basis Cash stablecoin, “Essentially all I did was join Telegram rooms and post crap,” Kwon said.
Denelle Dixonmanaging director i Stellar Development Foundationis not as eager as others in the industry for crypto to receive new, tailored rules. “I would hate to see new laws written for crypto because it’s all hype,” she said at a TechCrunch Disrupt panel on Tuesday.
Just one more question…
Jonathan Dharmapalan, CEO, eCurrency
Dharmapala the witness last year before the House Committee on Financial Services to implement a digital central bank currency in the United States after helping to establish one in Jamaica.
Are crypto tokens “currency”?
Crypto might be a form of asset, like a security, or you can even push it as far as stablecoins – a kind of accepted money. But they have no legal status at all. And because of that, cryptocurrencies in any form are not currency – they are not legal tender, they are not backed by the government, and they do not perform the role that currencies, as in cash, play.
There is a big reason for that. The legitimacy of a currency—let’s say the United States dollar—comes from the fact that the law of the United States backs the United States dollar. But it does not stop there. It actually becomes a very powerful instrument because the United States is able to make its payments to the public and its employees in US dollars, and is able to accept its receipts, such as taxes, in US dollars. These are things that cryptocurrencies do not have the power to do.
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Thanks for reading – see you tomorrow!
