As bitcoin, ethereum and other cryptocurrencies get increasing attention from investors, Wall Street and its traditional banks continue to adjust to the shift. Catch up on this week’s top stories highlighting the intersection of these old guard and new school areas of finance with this recap compiled by The Fly.
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SEC CHARGES SAM BANKMAN-FRIED WITH DEFRAUDING INVESTORS: The Securities and Exchange Commission announced Thursday it had charged Samuel Bankman-Fried with orchestrating a scheme to defraud equity investors in FTX Trading, the crypto trading platform of which he was the CEO and co-founder. Investigations as to other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing.
The agency said, "According to the SEC’s complaint, since at least May 2019, FTX, based in The Bahamas, raised more than $1.8B from equity investors, including approximately $1.1B from approximately 90 U.S.-based investors. In his representations to investors, Bankman-Fried promoted FTX as a safe, responsible crypto asset trading platform, specifically touting FTX’s sophisticated, automated risk measures to protect customer assets. The complaint alleges that, in reality, Bankman-Fried orchestrated a years-long fraud to conceal from FTX’s investors the undisclosed diversion of FTX customers’ funds to Alameda Research LLC, his privately-held crypto hedge fund; the undisclosed special treatment afforded to Alameda on the FTX platform, including providing Alameda with a virtually unlimited ‘line of credit’ funded by the platform’s customers and exempting Alameda from certain key FTX risk mitigation measures; and undisclosed risk stemming from FTX’s exposure to Alameda’s significant holdings of overvalued, illiquid assets such as FTX-affiliated tokens. The complaint further alleges that Bankman-Fried used commingled FTX customers’ funds at Alameda to make undisclosed venture investments, lavish real estate purchases, and large political donations."
The SEC’s complaint seeks injunctions against future securities law violations; an injunction that prohibits Bankman-Fried from participating in the issuance, purchase, offer, or sale of any securities, except for his own personal account; disgorgement of his ill-gotten gains; a civil penalty; and an officer and director bar. In parallel actions, the U.S. Attorney’s Office for the Southern District of New York and the Commodity Futures Trading Commission announced charges against Bankman-Fried.
COINBASE TO HALT OPERATIONS IN JAPAN: In a Wednesday blog post, Coinbase (COIN) stated: "Due to market conditions, our company has made the difficult decision to halt operations in Japan and to conduct a complete review of our business in the country. However, we are committed to making this transition as smooth as possible for our valued customers. We want to assure you that we have segregated the Japanese Yen and crypto assets of our customers in custody in compliance with the regulations, and we are committed to ensuring that all our customers can withdraw their assets at their earliest convenience. Fiat deposit functionality will be removed on January 20th, 2023 JST."
JPMorgan analyst Kenneth Worthington raised the firm’s price target on Coinbase to $60 from $53 on Friday and kept a Neutral rating on the shares. Cryptocurrency prices have surged in the beginning of 2023 and for a broker/exchange like Coinbase, "higher volumes and prices help," Worthington said. While he thinks the crypto ecosystem has suffered "meaningful credibility issues," Coinbase "has emerged with its credibility and brand strengthened – at least relatively," said Worthington, who sees Coinbase as a beneficiary of the challenges that have faced other brokers/exchanges following the collapse and bankruptcy of FTX.
SILVERGATE, SIGNATURE BANK EARNINGS: Silvergate Capital (SI) reported fourth quarter adjusted earnings per share of 48c on Tuesday, which compared to analyst estimates of 81c. Digital asset customers were 1,620 at December 31, compared to 1,677 at September 30, and 1,381 at December 31, 2021. The Silvergate Exchange Network handled $117.1B of U.S. dollar transfers in Q4, an increase of 4% compared to $112.6B in Q3, and a decrease of 47% compared to $219.2B in 4Q21. The company reported book value per common share of $12.93 and a common equity tier 1 capital ratio of 42.48% as of December 31.
CEO Alan Lane commented, "While we are taking decisive actions to navigate the current environment, our mission has not changed. We believe in the digital asset industry, and we remain focused on providing value-added services for our core institutional customers. To that end, we are committed to maintaining a highly liquid balance sheet with a strong capital position."
BTIG analyst Mark Palmer kept his Buy rating and $21 price target on Silvergate Capital on Tuesday, stating that the company’s Q4 results demonstrate its "continued viability" in spite of the volatility in the crypto-currency market. The analyst added that the initial headlines regarding Silvergate’s report focused on the $1B loss it printed during the quarter, but the details management provided around their efforts to return the company to profitability were "more important".
Additionally, Signature Bank (SBNY) reported Q4 EPS of $4.65 on Tuesday, which compared to analyst estimates of $4.89. Net interest margin on a tax-equivalent basis for Q4 was 2.31% versus 2.38% in Q3 and 1.91% reported in 4Q21. The company reported a book value per common share of $116.08 and a CET1 risk-based capital ratio of 10.42% as of December 31.
“The arduous rate environment, along with challenges in the digital asset space, led to deposit declines, which we overcame with little difficulty, given our robust liquidity position. Despite these deposit headwinds, we still earned record net income of $1.34B and a record return on common equity of 16.35% for the year,” said CEO Joseph DePaolo.
On Wednesday, Stephens analyst Matt Breese downgraded Signature Bank to Equal Weight from Overweight with a price target of $145, down from $150. Breese admitted "this has been one of our tougher calls" with the stock down 66% year-over-year and believes the near-term bear case outweighs the bull after reassessing his model and the thesis post-earnings, citing net interest margin pressure, greater-than-anticipated balance sheet reduction, and questions around crypto exposure and regulation. Meanwhile on Wednesday, Maxim analyst Michael Diana lowered the firm’s price target on Signature Bank to $200 from $250 and kept a Buy rating on the shares. The analyst cited the company’s Q4 earnings miss as the management strategically decreased its crypto-related deposits as well as its "soft" 2023 guidance that calls for a smaller balance sheet and a $3B-$5B decline in digital deposits. Diana is also cutting his FY23 EPS view for Signature Bank to $15.50 from $18.00 and his FY25 view to $18.50 from $22.00.
CLEANSPARK COMMENCES BITCOIN MINING EXPANSION: CleanSpark (CLSK) announced Thursday that it has started construction on the second phase of one of its newest sites in Washington, Georgia. The company acquired this campus in August as part of its recent bear-market growth campaign. Upon completion, the new phase, which is expected to employ only the newest generation of bitcoin mining machines, will add up to 2.2 exahashes per second of computing power to the company’s mining capacity. The mining machine fleet at the new phase will consist of Antminer S19j Pro and Antminer S19 XP models. Depending on the final number of each model in the mix, the total computing power that will be added to CleanSpark’s bitcoin mining capacity will range from 1.6 EH/s to 2.2 EH/s, a 25% to 34% increase from its current hashrate of 6.5 EH/s.
BIT BROTHER BUYS CRYPTO MINING MACHINES: Bit Brother (BTB) announced Tuesday that, through its subsidiary Bit Brother New York, it purchased 1,400 S19J Pro cryptocurrency mining servers from Grand Flourish for an aggregate purchase price of $2,329,600. Each server has a hash rate of approximate 100 TH/S. All servers are new with a warranty of 6 months and have been delivered. BTB estimates that its servers can generate a total value of 0.4717 bitcoins per day, and thus approximately 14.15 BTC per month, assuming all machines operate as expected.
Bit Brother also announced Friday that its board of directors has approved the formation of a special task force to address suspected illegal shorting of its stock.
"The Special Task Force plans to engage competent counsel and/or investigation professionals and to take all possible actions to identify and prosecute those involved in the market manipulation of BTB’s stock, especially the institutions or individuals involved in illegal naked short selling…The company plans to utilize all reasonable resources to conduct the investigation. Management believes that the formation of the Special Task Force would help expose those who may have participated in market manipulation of the company’s stock. The board believes that this action will deter any future manipulation of the market by exposing and persecuting naked short sales of the company’s stock and other violations," the company stated.
CRYPTO STOCK PLAYS: Cryptocurrency revenues have been pointed to as reasons to be bullish on Advanced Micro Devices (AMD) and Nvidia (NVDA) in select research. Ideanomics (IDEX), Riot Blockchain (RIOT), Overstock (OSTK), and SRAX (SRAX) are other stocks that have been touted, or promoted themselves, as a way to play the crypto theme.
PRICE ACTION: As of time of writing, bitcoin rose roughly 11% this week to $21,128 in U.S. dollars, according to TradeBlock.
Published first on TheFly
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