2 crypto stocks that could hedge inflation better than Bitcoin

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JPMorgan Chase (NYSE: JPM), the world’s largest bank, recently released a digital asset report that found that many investors continue to view Bitcoin (CRYPTO: BTC) as a substitute for gold, and therefore a inflation hedging. Earlier this year, however, many experts were saying the exact opposite.

I’m not sure who is right, and I think the idea of ​​Bitcoin being an inflation hedge is still somewhat questionable. However, with inflation still on the rise, the Federal Reserve officially starting to cut its bond purchases and the market pricing of interest rate hikes in 2022, thinking about hedging your portfolio against inflation is no longer the case. certainly not a bad idea. Here are two crypto stocks that I think could be better inflation hedges that are more secure than Bitcoin.

1. Silvergate Capital

About $ 12 billion in assets Silvergate Capital (NYSE: SI) is one of the few licensed banks in the country to operate heavily in crypto. While it neither owns nor operates cryptocurrencies on its balance sheet, its entire business model is based on its real-time payment system – the Silvergate Exchange Network (SEN) – which allows parties to ” clear transactions instantly, 24 hours a day. This makes cryptocurrency trading more efficient for institutions and crypto exchanges, as assets are traded 24 hours a day. SEN has helped the bank bring in tons of deposits on which it does not have to pay interest, as well as attracting a large clientele to which it can sell its traditional banking products. In addition, SEN can mint and engrave stable coins, which represents a huge opportunity for the bank.

Image source: Getty Images.

But what makes Silvergate such a good potential hedge against inflation is the fact that it is a bank. Bank stocks tend to be effective hedges against inflation – as long as it’s not runaway inflation – because inflation usually leads the Fed to raise benchmark interest rates. Most banks are asset sensitive, which means that when interest rates rise, more of the interest rates they charge on their assets (such as loans) adjust upward than interest rate they pay on their liabilities (like deposits).

Silvergate revealed in its second quarter regulatory filing that if the Federal Reserve increases the federal funds rate by 1%, the bank’s net interest income – the income it earns from loans and securities after hedging its financing cost – would increase by nearly 52% over the next year. That’s a bigger forecast jump on this measure of such a rate hike than any bank I’ve seen, and that’s largely because Silvergate has so many deposits that it doesn’t. pays no interest on what he might deploy in earning interest. assets. The bank would likely be much more profitable in a higher rate environment.

2. Signature bank

Signature Bank (NASDAQ: SBNY) has also developed a real-time payment network – in this case called Signet – that works to better serve the transactional side of cryptocurrency trading. This helped the nearly $ 108 billion asset bank build a much stronger deposit base and generate more commission income than it could when it was a more traditional financial institution.

According to its second-quarter regulatory record, if the Fed hiked the fed funds rate by 1%, Signature’s net interest income would rise 6.3% over the next year. It’s obviously not as big a boost as Silvergate anticipates, but Signature is a lot bigger. In addition, Signature continues to change the overall composition of its deposit base and still has many interest-bearing deposits, the rates of which increase with interest rates, which weighs on the bank’s margins. Signature is also rolling out and scaling up new lending products that would likely shift the bank’s loan portfolio to more variable rate loans. On this basis, the sensitivity of Signature’s assets should continue to increase.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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