With Extreme Short Interest Levels, Has Silvergate Hit Meme Stock Status?

Though the sum investors are betting against Silvergate remains extremely high, one analyst is not ready to label the company a so-called meme stock. 

Nearly 87% of Silvergate’s shares are shorted — the highest percentage of float of any US company with at least $50 million of short interest, according to data from analytics firm S3 Partners

Silvergate’s short standing ranks above Bed Bath & Beyond (BBBY) and Carvana (CVNA), which place second and third, respectively. Bitcoin miner Marathon Digital ranks seventh, at about 44%.  

Short interest is the number of shares sold short that remain outstanding. Borrow rates on existing stock is 18%, the firm said, while new stock borrow rates have reached 29%.

The cost of maintaining open shorts typically rises in tandem with associated trading volumes. 

About 3.7 million new Silvergate (SI) shares — worth roughly $20 million — sold short in the past 30 days, according to Ihor Dusaniwsky, S3 Partners’ managing director of predictive analytics.

The latest metric marks an 18% increase in cumulative shorted shares, and the stock plummeted 71% over the same montlong span. 

In the last week alone, traders placed bearish bets on more than 1.5 million Silvergate shares (about $8 million). 

Silvergate is leading the way in terms of the percentage of shorted stock on overall shares on the market.  

But the sum of that short interest, $128 million, pales in comparison to a stock like Tesla, which has a short interest of $15.4 billion. (Tesla has a much larger market capitalization.) 

Quick climb to shorting star 

Silvergate has climbed to number one in short interest — despite not being ranked in the top 50 most shorted stocks, as of July 2021. 

Still, Dusaniwsky told Blockworks he doesn’t currently view Silvergate as a “meme stock” — broadly defined as a stock that gains popularity among retail investors via increased social sentiment. 

Such stocks generally include BBBY, as well as GameStop (GME) and AMC Entertainment Holdings (AMC).

“It seems that there is not the ownership buzz on the retail side that we see in GME, AMC and BBBY,” Dusaniwsky said. “Meme-ory may be more of a retail stock thing than a banking stock thing. It seems retail shareholders can identify more with video games, movies and home goods than digital banking.”

The mounting short interest comes as the stock has lost a great deal of its value.

The crypto bank booked a $1 billion fourth-quarter loss and slashed its workforce by 40% in January.

Silvergate more recently shuttered its exchange network, SEN. The stock fell 30% in after-hours trading on March 1 after the company said it would delay filing its annual report with the SEC. 

The next day, Coinbase moved to cease transfers to and from Silvergate “out of an abundance of caution.”

“The situation with Silvergate shows just how the contagion effect from FTX continues to rumble on, and how investors’ exposure to the centralized exchange model can blow up,” said Josef Tetek, a bitcoin analyst at Trezor, a hardware wallet company. “When things go bad, that exposure is a risk that is passed on to crypto investors extremely broadly.”

Silvergate stock, which peaked at more than $200 in November 2021, stood at $5.21 at 4 pm ET Tuesday — down 3.5% on the day.

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