Although deeply embattled, crypto-friendly bank Silvergate Capital (NYSE:SI) is managing to pop conspicuously higher against an otherwise soft opener for the last week of March. Up almost 15% in afternoon trading, SI stock may become the next big short-squeeze opportunity. However, those attempting this trade will likely encounter headwinds.
According to data from Fintel, SI stock features a short interest of 71.64% of its float. This makes Silvergate one of the most shorted publicly traded securities in recent sessions. Given the wild success of early meme stocks, it’s also no shock that Silvergate has attracted some eyeballs as a result.
Adding fuel to the fire, SI stock recently posted a Short Squeeze Score of 91.19 points on Fintel. According to the investment resource, this score “ranges from 0 to 100, with higher numbers indicating a higher risk of a short squeeze relative to its peers, and 50 being the average.” On Fintel’s Short Squeeze Leaderboard, SI ranks 25 out of 250 most-shorted securities.
Finally, as if that wasn’t enough, Fintel notes that the number of shares available to be shorted “at a leading prime brokerage” sits at 100,000 at the time of this writing. This figure was much higher before trading today.
Major Risk Factors Ahead for SI Stock
Although the contrarian opportunity appears to be incredibly enticing for SI stock, traders should be aware of the less-than-ideal circumstances here. For instance, Silvergate’s short interest ratio sits at only 0.57 days to cover — the time needed for short sellers to repurchase their borrowed shares from the open market. From the contrarian’s perspective, that’s not much time at all to panic the bears.
On the fundamental front, InvestorPlace’s Samuel O’Brient also recently reported that a mystery crypto exchange may be considering buying Silvergate’s trade processing technology. Naturally, this rumor has sparked intrigue toward SI stock. At the time, the company didn’t issue a statement on the matter, however.
The underlying crypto market itself also faces significant headwinds. According to CNBC, for instance, the Commodity Futures and Trading Commission (CFTC) recently stated that Binance — the largest crypto exchange in the world — violated eight provisions of a commodities trading law “designed to prevent and detect money laundering and terrorism financing.” Per Oanda analyst Ed Moya:
“Many knew Binance had a bullseye on its back, but this is still unnerving some crypto traders […] Binance’s success is needed to ensure a good part of the cryptoverse can grow.”
With the crypto industry coming under increasing legal pressure, it’s difficult to imagine any enterprise wanting to expose themselves to possibly sustained risks.
Why It Matters
Of course, some regional banks have stepped up to the plate to offer crypto firms banking services following the extreme volatility of financial entities like Silvergate. While this might assuage near-term concerns, investors should also recognize the risks of smaller banking firms’ vulnerability to unpredictable businesses.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Josh Enomoto 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.