Here’s what will happen in the short and medium term for cryptocurrencies, according to this famous cryptocurrency CEO

The bear market hitting every corner of the digital asset industry is not over yet and could see some further suffering in the coming quarters, according to cryptocurrency-focused bank Silvergate Capital (SI).

The cryptocurrency industry may still see some pain points for some cryptocurrency exchanges and funds in the coming quarters, “but at some point all of that will be done, and so we’ll just wait for the next catalyst.” Alan Lane, CEO of TradFi and former banker, said in an interview with CoinDesk.

However, investors shouldn’t compare the current decline in cryptocurrency prices with previous ones given the broader global economic recovery as digital assets have declined alongside macro trends, including rising rates and inflationary pressures, Lane said.

Silvergate shares are down 42% this year, although they have risen 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), was down 67% this year, but was up 15% in the past. . Rising rates and fears of a recession have hurt global equity markets, especially stocks deemed riskier. The technology-rich Nasdaq Composite Index has fallen about 25% year to date.

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

The Silvergate Exchange Network (SEN), a fiat ramp for bitcoin markets, saw a 34% increase in US dollar transfers in Q2 compared to a year ago, while net revenues 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 risk management was a key factor in Silvergate’s positive results. “Perhaps the biggest long-term positive point in history has been a risk management program that resulted in no loan write-downs, despite the significant volatility of spot cryptocurrency prices. – currencies and some contagion of default in the ecosystem more broad, “Joe, analyst at Canaccord equity research Vafi said in a note to clients.

Vafi also expects Silvergate to double its earnings in the coming years, given the various growth engines in which the company is committed. Evaluate the stock with a purchase target and price of $ 200; the shares closed at $ 86.50 each Friday.

Amid the recent collapse of several cryptocurrency-linked and over-indebted financial institutions, Lane continues to support the use of bitcoin for its lending program.

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

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

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

Troubled lenders include those who offered unsecured or unsecured loans to customers, while Silvergate requires excessive collateral, according to Lane. If market headwinds persist, a borrower can repay the loan, pledge more bitcoins as collateral, or Silvergate can make the decision to liquidate bitcoin on its behalf if necessary.

In January, Silvergate purchased technology and other assets from Diem, Meta Platforms’ (formerly Facebook) stablecoin project first announced as Libra in June 2019.

“Although the details remain scarce, the assets acquired by Diem really provide a solid platform for a stable currency for e-commerce and we can only believe that the demand from both payment platforms and merchants could be strong over time,” he said. added Vafi of Canaccord in his note to customers.

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

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Thomas E.
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