Today’s steep drop in Silvergate Capital (NYSE:SI) stock may surprise some investors, but there’s news to explain the share dump. This morning, Silvergate Capital provided a fourth-quarter 2022 business update and disclosed a major headcount reduction. What’s more, it seems that Silvergate’s customers haven’t been making crypto-related deposits as much as they once did.
Based in California, Silvergate Capital is a bank holding company for Silvergate Bank, which is a very crypto-friendly bank. That’s fine when the public likes crypto. But it becomes problematic when crypto is out of favor.
Cryptocurrency definitely went out of favor with the public in 2022. That’s mainly due to the collapse of crypto exchange FTX. As Silvergate’s press release puts it, there has been “a crisis of confidence across the ecosystem.”
Consequently, at the end of Q4 2022, the company’s total deposits from digital asset customers fell to $3.8 billion. That’s a sharp fall-off compared to $11.9 billion as of Sept. 30, 2022.
What’s Happening With SI Stock?
As of this writing, SI stock is down more than 45% and shows no signs of recovering. To some investors, this may look like an overreaction to Silvergate’s decline in customer cryptocurrency deposits. But there’s more to the story here.
Here’s another shocker from Silvergate Capital’s press release: The company is reducing headcount by around 200 employees, or roughly 40% of staff. The company claims to be doing this “in order to account for the economic realities facing the business and industry today.”
That’s a drastic workforce reduction. Of course, you’ve probably heard about other tech-sector businesses cutting their staffs by 5% or maybe 10%. But not 40%.
When businesses reduce their headcounts slightly, that’s often viewed positively as a sign of fiscal discipline. In Silvergate Capital’s case, however, today’s financial traders are seeing it as an indication that the company may be in serious trouble. Unfortunately, if the current share-price downtrend persists, some SI stock investors may be in trouble as well.
On the date of publication, David Moadel 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.
