Silvergate Bank, an American financial institution that was one of the first to support cryptocurrency-focused clients, reported a record quarter on Monday.

In its earnings report pertaining to Q3 2020, Silvergate revealed that it added $586 million worth of deposits from cryptocurrency companies over this past quarter, making it the firm's second-most successful quarter in terms of cryptocurrency capital inflows. Silvergate reported $835 million in deposits during Q4 2017, when Bitcoin was in the midst of a parabolic rally to $20,000. 

The bank, which brands itself as a "banking platform as innovative as the entrepreneurs we serve," now holds $2.1 billion on behalf of digital asset companies and investors. 

According to a transcript of Silvergate's earnings call to investors obtained by the BTC Times, CEO Alan Lane believes the rally in the Bitcoin price has resulted in the increase in business: 

Factors such as digital currency price appreciation, trading volumes and volatility within the digital currency markets influence deposit levels, but we believe that as more FinTech firms and corporate treasuries announced their investments in Bitcoin, the ecosystem as a whole will continue to expand and Silvergate will continue to benefit. 

In the call, Lane also elaborated further that Silvergate has been working on rolling out a new product that allows customers to "obtain U.S. dollar loans collateralized by Bitcoin." 

The service will allow holders to leverage their bitcoin, which may be especially important during rallies where firms want to expand their operations without selling bitcoin. 

Taking a step back, company executives also commented on their thoughts on the state of the Bitcoin ecosystem.

Executive Vice President of Corporate Development at Silvergate Ben Reynolds noted that the firm is excited about the number of corporate treasuries investing in Bitcoin: 

And so, we are excited about corporate treasuries that are investing in Bitcoin as an asset class and other fin-tech players coming into the space. And we just think that we are really at a point where a rising tide lifts our boats, and Silvergate is excited to have the customer base that we do and be able to work on some new products with folks. 

Reynolds is referencing two recent news events: business services company MicroStrategy purchased $425 million worth of Bitcoin in August and September. And earlier this month, the $80 billion financial technology company Square deployed 1% of its balance sheet, amounting to $50 million, into Bitcoin. Both investments are up strongly since their inception.

Competition in the Bitcoin Banking Industry

Silvergate may be facing competition, though. 

For one, Signature Bank, another American institution that embraced Bitcoin clients early on, reported a strong quarter. The company saw a $1 billion bump in deposits from digital asset firms, largely due to the increase in the issuance of stablecoins.

Leading Bitcoin exchange Kraken also rolled out a new subsidiary called Kraken Financial in September.

As the BTC Times reported previously, the subsidiary received approval in the state of Wyoming to become the "world’s first Special Purpose Depository Institution." This means that the firm has received a bank charter "recognized under federal and state law." 

When Kraken Financial is rolled out, it will service digital asset firms and retail clients. Kraken's chief legal officer Marco Santori said that that Kraken Financial will be a full-scale cryptocurrency bank as opposed to just servicing digital asset firms and investors with secure deposits: 

"Kraken hopes to offer: Digital asset custody, Checking and savings accounts, Wire transfers, Trust accounts, Online and mobile banking UIs, Debit cards, Account management services, Little chained-up pens; and Deposit verifications." 

Kraken is the first digital asset exchange to have received an official U.S. state and federal banking license. 

Mike Novogratz, CEO of Galaxy Digital and a former partner at Goldman Sachs, postulates that Wall Street giants will also enter the Bitcoin fray.

He told CNBC last week that PayPal adding support for cryptocurrencies will force other financial institutions to enter the mix. The Wall Street veteran specifically highlighted how the price of Bitcoin and the market cap of companies like PayPal and Square are dramatically outperforming banks in 2020.

For instance, year to date the stock of Square is up 170%. In comparison, the stock of Wells Fargo is 57.5% on the year. 

Novogratz believes that this divergence will force underperforming institutions to look at what is working for their fintech competitors. This includes support for digital assets in some capacity.

Already, it has been rumored that TD Ameritrade is looking to support Bitcoin, and it was reported that JP Morgan recently began to service Coinbase. 

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