Before you jump into a hasty trade with Silvergate Capital (NYSE:SI) stock, think carefully and consider the risks involved. Silvergate Capital is an unsuccessful bank that may be in its final stages of existence. Plus, it appears that regulators are cracking down on failing banks, and this doesn’t bode well for Silvergate Capital.
Based in California, Silvergate Capital built its reputation as a cryptocurrency-friendly bank that caters to institutional investors. That wasn’t a problem when Bitcoin (BTC-USD) traded at around $69,000.
However, Silvergate Capital’s net worth plummeted when Bitcoin crashed below $25,000 and a number of depositors attempted to withdraw their funds at the same time. Now, Silvergate Capital and its shareholders are tasked with picking up the pieces of a failed financial institution. Unfortunately, the prospects are poor and SI stock is likely to continue losing value this year.
There’s Little Hope for a Recovery With SI Stock
The collapse of Silvergate Capital has been spectacular, with the company’s share price plummeting from over $200 to less than $2 in a year and a half. It’s hard to even define what a “recovery” would mean at this point.
It’s possible that unconfirmed rumors or a retail-trader-fueled short squeeze might catalyze a quick bounce in SI stock. Investors shouldn’t count on these events taking place, however. Besides, any share-price pops could easily lead to precipitous drops.
That’s because Silvergate Capital is unraveling as a business. The company has disclosed its intention to “wind down operations and voluntarily liquidate the Bank.” Furthermore, Silvergate Capital received a noncompliance notice from the New York Stock Exchange (NYSE) because the company failed to file its Form 10-K annual report on time. This is another reason for SI stock investors to be concerned.
Regulatory Scrutiny Could Weigh on SI Stock
In case Silvergate Capital didn’t already have enough problems, here’s one more. According to Coinbase, the Federal Deposit Insurance Corporation (FDIC) is investigating collapsed banks and FDIC Chairman Martin Gruenberg apparently has Silvergate Capital in his crosshairs.
Gruenberg made a scathing statement to the U.S. Senate Committee on Banking, Housing and Urban Affairs, and he dedicated an entire section to “The Wind Down of Silvergate Bank.” The FDIC chairman’s ire was evident:
“The troubles experienced by Silvergate Bank demonstrated how traditional banking risks, such as a lack of diversification, aggressive growth, maturity mismatches in a rising interest rate environment, and sensitivity to liquidity risk, when not managed adequately, could combine to lead to a bad outcome.”
Maybe you agree with Gruenberg, or maybe you don’t. Either way, it’s important to know that some high-ranking individuals on Capitol Hill are probably seeking to make an example out of Silvergate Capital. Therefore, it’s too risky to invest in the company now.
Stay Safe, And Stay Away from SI Stock
Sure, rumors or short squeezes might push the Silvergate Capital share price higher in the short term. For the long term, however, the outlook is extremely uncertain at best.
So, even if you’re a thrill-seeker, I still can’t recommend investing in Silvergate Capital now. The best policy is to avoid SI stock and find a more successful business to wager your hard-earned capital on.
On the date of publication, David Moadel did not have (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.