Silvergate Capital ( NYSE: SI ) stock drifted up 2.1% in Wednesday morning trading as BTIG analyst Mark Palmer expects short traders to eventually cover their bearish bets on the beaten down stock, resulting in a short squeeze. Shares of the digital asset-focused bank has plunged about 46% from when crypto exchange FTX ( FTT-USD ) filed for bankruptcy protection on November 11. And the stock is off over 86% in the past year in the face of a broader bear market. Palmer attributed the one-month plunge to "misleading commentary" about the company on social media. He specifically pointed to its alleged ties with Sam Bankman-Fried's crypto empire, where FTX reportedly may have used the Silvergate Exchange Network to transfer customer funds to SBF's trading firm Alameda Research. In response to those allegations, U.S. lawmakers sent a letter to Silvergate ( SI ) CEO Alan Lane requesting clarity about its relationship with FTX and Alameda, adding further downward pressure to SI shares. In an exchange of Twitter direct messages last month between SBF and a Vox reporter, the onetime billionaire noted that those seeking funds available for trading through FTX in 2019 would transfer funds to Alameda, Palmer wrote in a note. Three years later, his team "had basically forgot about the stub account that corresponded to that and so it was never delivered to FTX,” the message read. Taking that into account, Palmer reckoned "the senators' assumption that FTX used the SEN to facilitate the transfer of customer funds to Alameda may be false." In his view, "if the FTX funds in question had been held by Alameda in anticipation of a transfer to the exchange that never happened, and Alameda then used those funds to make the 'risky bets' that the senators referenced, then there would be no basis for the suggestion that SI had acted improperly," according to the note. If that's the case, the "SI Short Trade Appears Likely to End With [a] Short Squeeze," Palmer highlighted. Last month, Silvergate disclosed it has under $20M in digital asset deposit exposure to BlockFi, which filed for bankruptcy shortly after the implosion of FTX .
