Here’s what’s going to happen in the short and medium term for cryptocurrencies, according to this famous crypto executive

The bear market hitting all corners of the digital asset industry is not over yet and may experience some more pain in the coming quarters, according to cryptocurrency-focused bank Silvergate Capital ( SI ).

The crypto sector may still see a few pain points for some crypto exchanges and funds over the next few quarters, “but at some point all that will be done and then we’ll just wait to see what the next catalyst will be.” he said.TradFi CEO and former banker Alan Lane told CoinDesk in an interview.

However, investors should not compare the current decline in the price of crypto with previous ones, given the broader global economic reset, as digital assets have coincided with macro trends, including rising prices and inflationary pressures, Lane said.

Silvergate shares are down 42% this year, although they are up 33% in the past week. The VanEck Digital Transformation ETF ( DAPP ), which holds a basket of various crypto stocks, including exchange Coinbase ( COIN ) and miner Marathon Digital ( MARA ), is down 67% this year but is up 15% last week. . Rising rates and fears of recession are hurting global equity markets, especially stocks that are considered riskier. The tech-heavy Nasdaq Composite Index is down about 25% year-to-date.

Given the slowdown in the cryptocurrency, analysts are predicting a weak quarter for various cryptocurrency businesses, from exchanges to miners, but Silvergate’s second quarter results reversed the trend.

Silvergate Exchange Network (SEN), a fiat ramp for bitcoin markets, saw a 34% increase in US dollar transfers in the second quarter compared to a year ago, while net revenue grew 85% year-over-year.

According to Lane, Silvergate avoided the pitfalls of the bear market by sticking to what the bank does best and not chasing FOMO. “We really try to stay in our lane and not chase the latest fad, but focus on what we do well and fundamentally solve our customers’ problems,” Lane said.

Investment bank Canaccord Genuity believes that risk management has been a key factor in Silvergate’s positive results. “Perhaps the biggest long-term bright spot in the story was a risk management program that resulted in no loan write-downs, despite significant volatility in the spot prices of crypto-currencies and some default contagion to the broader ecosystem,” said Joe, Canaccord equity research analyst. Vafi said in a note to clients.

Vafi also expects Silvergate to double its earnings over the next few years, given the various growth engines the company has engaged in. He rates the stock with a buy and price target of $200; shares closed at $86.50 each Friday.

Amidst the recent collapse of several cryptocurrency-linked and legacy financial institutions, Lane continues to support using bitcoin for its lending program.

“We are absolutely still interested in lending against bitcoin,” Lane said. “We think it’s one of the best loans we’ve ever taken out, and we want to continue to develop it. »

More recently, Silvergate used its SEN Leverage program in a $205 million loan to Michael Saylor’s MicroStrategy so the business intelligence firm could buy more bitcoin.

Lane said the lending platform was built knowing it would come with volatility, and says the recent cryptocurrency rout was a good stress test for Silvergate to show it can withstand volatility in its lending business model.

Among the lenders that have had problems are those that offered customers unsecured or undersecured loans, while Silvergate requires over-collateralization, according to Lane. If market headwinds continue, a borrower can repay their loan, put up more bitcoins as collateral, or Silvergate can make the decision to liquidate the bitcoins on their behalf if necessary.

In January, Silvergate bought the technology and other assets of Diem, the stablecoin project from Meta Platforms (formerly Facebook), which was first announced as Libra in June 2019.

“While details remain scarce, the assets acquired from Diem actually provide a strong platform for a stable currency for e-commerce, and we can only believe that demand from both payment platforms and merchants can be strong over time,” Canaccord’s Vafi added in her message to the customers.

Silvergate said on its earnings conference call that its stablecoin launch remains on track for this year.

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Thomas E.
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