In an analysts’ note, Goldman Sachs began its coverage of Silvergate Capital with a neutral rating, expressing optimism about Silvergate’s growth prospects but concerns about regulatory uncertainty and surging competition from traditional banks.

The investment bank, which has warmed to the crypto industry over the past year, highlighted Silvergate’s strong network of customers and growth opportunities, stemming from an increasing flow of fiat deposits. Silvergate Capital is the bank holding company for Silvergate Bank, which provides products and services for cryptocurrency investors.

Silvergate ended the first quarter with $6.8 billion in crypto-related deposits, and Goldman Sachs said it believes “organic client growth” could boost that amount to $20 billion.

The analysts also said that Silvergate could generate up to 50% higher net income on those deposits by moving even just a portion of them into an investment portfolio. They also said they see a market of $80 billion for collateralized crypto-backed loans.

Goldman Sachs views Silvergate as “an acquisition candidate,” but mentioned in the note an unsettled regulatory environment and a growing interest in the crypto industry among established financial services firms. “We view the large banks as the most significant threat to Silvergate’s business,” the analysts’ note said.

Separately, Silvergate announced Tuesday that Michael Lempres will become chairman and Aanchal Gupta will join the boards of directors for the company and Silvergate Bank. Lempres has been a member of Silvergate’s board since 2019. Among his earlier positions, he was executive in residence at venture firm Andreessen Horowitz and chief legal and risk officer at Coinbase.

Gupta has served in several high-level technology security roles. As vice president of Azure, Microsoft’s cloud computing platform, she now oversees cloud security products. Previously, she served as chief information security officer for Novi (previously Calibra), Facebook’s cryptocurrency project.

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