JPMorgan Downgrades Silvergate Capital After Unexpected Deposit Outflows In Q4

JPMorgan Chase & Co. JPM downgraded crypto-focused bank Silvergate Capital SI on Friday from "overweight" to "neutral."

The bank also lowered its price target from $30 to $14 on Friday, Coindesk reported.

The financial behemoth in a research report stated that Silvergate Capital’s worse-than-expected outflows of deposits in the fourth quarter will have negative impacts on the company's long-term profitability.

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Silvergate's shares fell over 10% in premarket trading on Friday, having already dropped 43% on Thursday following the release of the report.

The report suggested that the challenging environment for the cryptocurrency settlement industry was a contributing factor to the unexpected results.

It also noted that concerns raised by short-sellers on social media may have played a role in the higher-than-expected number of customers withdrawing deposits from the platform.

"While the challenging backdrop for the crypto settlement business was a factor in the worse-than-expected results being released, we also believe that concerns voiced by short-sellers (on Twitter) likely also contributed to Silvergate's customers withdrawing deposits from the platform at a greater than anticipated level," analysts led by Steven Alexopoulos wrote.

JPMorgan expects deposit balances to return to late 2020 levels but warns they could normalize at lower levels as cryptocurrency customers adopt a "risk-off" position and opt to sit on the sidelines.

Despite this, the bank remains "bullish" on blockchain technology.

"We continue to believe that the distributed ledger technology behind cryptocurrencies represents a significant advancement with the potential to transform many aspects of financial services and other industries," analysts added.

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