Crypto Bank Optimizes Performance: How Silvergate Capital Has Generated Gains For Our Smallest Investors

Woman Holding Bitcoin (Moose Photos / Pexels)

Crypto Bank funds a small wallet

Regular readers may remember we mentioned Silvergate capital company (NYSE: SI) was one of our biggest names last summer. For example, we highlighted that this was one of our top ten names when Bitcoin was trading below $ 40,000 at the end of May (“A Covered Bet on a Bitcoin Fund”):

On Friday we had a new name related to Bitcoin in our top ten: the miner Marathon Digital Holdings, Inc. (NASDAQ: MARA).

Screenshot via Wallet armor on Friday 05/28/2021.

MARA joined Riot Blockchain (RIOT) and Silvergate Capital (SI) than other names related to Bitcoin.

Since it was one of our top names at the time, Silvergate was in our covered portfolios at the time.

A covered portfolio for a small investor

Our system can be used to create covered portfolios for amounts as low as $ 30,000. At the end of May, this was the covered wallet our site had created for users with $ 30,000 to invest who weren’t prepared to risk a drop of more than 13% in the next six months.

Screenshot via Portfolio Armor on 05/27/2021.

The two main holdings in this portfolio were Silvergate, and the Direxion Daily S&P Oil & Gas Exp. & Prod. 3x actions ETF (NYSE: GUSH). After rounding roughly equal dollar amounts down to round lots of both names, our system used a tight collared position in the iPath Series B Bloomberg Coffee Subindex Total Return ETN (NYSE: JO) to absorb most of the remaining cash.

The worst case scenario for this portfolio (Max Drawdown) was a drop of 10.59%; the best case (potential net return) was a gain of 19.36%; and the most likely scenario (expected return) was 6.84%.

A note about decimals: When our system processes data, numbers are output to more than two decimal places. We do not claim this level of precision; cutting the numbers to two decimal places is an aesthetic choice, because it matches the way we count dollars and cents.

How did this wallet work

Here is how this small hedged portfolio performs over the next six months.

Net of hedging and trading costs, this portfolio is up 13.51% against 10.18% for SPY over the same period. As you can see in the table of exited positions, the biggest contributor to the portfolio’s performance was Silvergate Capital.

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