Silvergate Capital (NYSE:SI), a bank that focused on lending money to crypto investors, disclosed on March 8 that it would shut down all of its businesses and liquidate its main operating unit, Silvergate Bank. In the wake of the news, SI stock plunged 42% to $2.84 on March 9. But the shares, which have tumbled 81% this year, are rebounding 10% in early trading.
Two of Wall Street’s most lionized individuals were among the largest investors in SI stock: Ken Griffin and Peter Thiel.
In February 2023, Griffin’s hedge fund, Citadel Securities, disclosed that it held a 5.5% stake in SI. For his part, Thiel launched a crypto startup, Block.one LLC that, together with its CEO, owned a combined 9.9% stake in SI as of last year. However, Block.one reported on March 8 that it had sold all of its shares of SI.
SI Stock: Possible Reasons for the Surge And Why It Is Unlikely to Endure
The resurgence of SI stock may be due to an optimistic note about another struggling bank, Silicon Valley Bank (NASDAQ:SIVB), this morning by JPMorgan, which reportedly called on investors to buy its shares. Additionally, billionaire investor Bill Ackman stated that Washington should bail out Silicon Valley Bank. These developments have led to speculation that either the U.S. government or private investors will look to rescue Silvergate.
But, as I’ve stated in previous columns, some of the most senior officials in Washington, including Treasury Secretary Janet Yellen and Securities and Exchange Commission (SEC) Chairman Gary Gensler, have openly discussed their hostility to cryptos.
And in recent months, the administration has taken significant actions that have hurt crypto investors and companies. Most prominently, the SEC has handicapped the crypto sector by classifying most cryptos as securities, thereby forcing firms in the industry to comply with harsh rules and standards that the government applies to securities.
Moreover, the Federal Reserve earlier this year decided to “presumptively prohibit” any of the banks it regulates from owning most crypto assets and told banks that crypto companies present “contagion risk” for banks.
With Washington clearly not enamored with the crypto sector and heavily cracking down on it, I think we can rule out any rescue of Silvergate by the federal government. Additionally, it isn’t easy to foresee a scenario in which any private entity wants to provide funds to Silvergate while Washington actively seeks to discourage banks from doing business with crypto companies.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.