Ken Griffin's Citadel Securities Discloses 5.5% Stake in Crypto Bank Silvergate
Comment of the Day

February 14 2023

Commentary by Eoin Treacy

Ken Griffin's Citadel Securities Discloses 5.5% Stake in Crypto Bank Silvergate

This article from CoinDesk may be of interest. Here is a section:

Market maker Citadel Securities has disclosed a 5.5% stake in Silvergate Capital (SI) worth about $25 million.

According to a Form 13G filed with the Securities and Exchange Commission (SEC), Citadel Securities is now the owner of roughly 1.73 million shares or a 5.5% stake in Silvergate, valued at $25 million based on Monday's closing price of $14.71.

A person familiar with Citadel Securities told CoinDesk that the filing is a result of the firm's options market making activities rather than a directional investment or stake in Silvergate. Citadel Securities makes markets in more than a million individual options at any time. For 13G filings, options positions are calculated based on long call positions, regardless of any offsetting short calls or puts, explained the person.

Meanwhile, trading firm Susquehanna also reported in a filing that it bought about 2.37 million shares, or a 7.5% stake, in Silvergate. The investment would be valued at about $35 million, based on Monday's closing price.

Alongside a modest rally in the price of bitcoin, Silvergate shares are higher by just over 5% on Tuesday at $15.53. Shares are down about 87% over the past year.

The moves come after BlackRock said it boosted stake in Silvergate last month. A filing showed that the asset management giant had a 7.2% stake in Silvergate Capital as of Dec. 31, as oppose to a 6.3% stake, reported a year earlier.

Eoin Treacy's view

Bitcoin is about 14 months out from the next halvening. That’s when the reward for successfully mining a new block on the blockchain will halve again. In previous cycles, the absolute low for the crypto winters occur about a year before the halvening and are retested around the time of the event.
Bitcoin rallied in January to break its medium-term sequence of lower rally highs. It firmed today from the lower side of its short-term range and a sustained move above the trend mean near $23,300 would go a long way to support the view a low of more than near-term significance has been reached.

Silvergate is the 2nd most shorter stock in the market at present and options are oddly prices. For example, one can buy the $2.50 January 2025 call for $15.70. That implies a breakeven of 18.20. The $17.50 January 2025 call trades at $9.10 for a breakeven of $26.60. That suggests mispricing since all of the volume has been in the puts.
The share has collapsed from its 2021 peak and is under investigation because of the FTX debacle. However, the price is posted a sequence of higher reaction lows since early this year. The only real question is whether the share will survive long enough to prosper in the next upswing for crypto assets?

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