U.S. Stocks' Exposure to Bitcoin: The Untold Scary Story

Have we ever ventured to learn about the degree of cryptos integration into the classic markets? Seriously, despite many adverse events around Bitcoin and its minor cohabitants occurring recently, the victory of the conservatives may be more elusive than appears at a glance.

According to CNBC, Elon Musk and Jack Dorsey, CEO of Twitter (TWTR) and Square (SQ), have agreed to discuss Bitcoin with each other at an event, which name and date were set during their Twitter exchange. They decided to call the event "The B Word" and scheduled to conduct it on July 21. These comments helped Bitcoin solidify its position towards $35K – well above the $30K level that many call crucial for the cryptocurrency.

Geopolitical drama around cryptos over the past month prompted many crowd investors to stay by sidelines and watch further developments. In reality, we saw intensification of China's crackdown on illegal miners in that country and several prominent banking analysts saying that "Bitcoin is almost done", on one hand, and Paraguay (and, lately, reportedly Tanzania) following footsteps of El Salvador in making Bitcoin sovereign legal tender, along with Shenzhen-based Bitcoin miner BIT Mining (BTCM) saying it is transferring its facilities to Kazakhstan – on the other hand.

This is strange how weirdly polarized people's views are on the future of cryptos – even within different branches of same institutions.

For example, Bank of New York Mellon happened to invest in a crypto startup. The startup, Fireblocks, is known for building tools for the secure storage and transfer of Bitcoin and other cryptocurrencies. BNY Mellon has been using Fireblocks's technology to underpin a new business that the bank started developing back in February, apparently amid warming up crypto investments and skyrocketing crypto prices. The institution viewed its role in serving as a custodian for digital assets on behalf of institutional investors.The investment bank adopted its new digital currency policy back then while CEO Todd Gibbons said "this was the natural reaction to a surge in client interest".

However, today we see different views on prospects on crypto projects developments across different branches of this institution. Insight has a different view on the crypto business development within the firm, however, it is just an asset management unit of BNY Mellon. But given the fact that Gibbons sticks to his vision, is he just trying to sound consistent or does this discrepancy signifies an open confrontation with its asset manager?

Let's admit that many other large financial institutions remain skeptical. For instance, the extreme volatility reportedly makes cryptocurrencies unappealing for the Qatar Investment Authority.

Meanwhile, cryptocurrency funds and brokerages say they're struggling to find the right candidates to fill specific positions. Examples include Steve Cohen's Point72 $22 billion Asset Management firm, as well as more traditional names like Goldman Sachs, the very same Bank of New York Mellon and DBS Group Holdings, who have started or are mulling to start offering crypto services and trading.

The truth is that cryptos are under the market's skin. The whole bunch of public companies rely on Bitcoin and other cryptocurrencies in their financial performances. Tesla, Square, PayPal, Coinbase and even Visa – these are just a few names to mention.

According to Yahoo.Finance, there are at least 7 public companies that reveal heavy exposures to Bitcoin. These are Silvergate Gapital (SI) with Market Cap of $2.9 billion, Mogo (MOGO) with Market Cap of $534 million, Cathy Wood's MicroStrategy (MSTR) with Market Cap of $6.2 billion, PayPal (PYPL) with Market Cap of $340 billion, Jack Dorsey's Square (SQ) with Market Cap of $110 billion, Galaxy Digital Holdings (RPHF) with Market Cap of $1.8 billion and, one way or the other, TSLA with Market Cap of… should we mention it… $655 billion. Can they fail?

Barron's goes even further claiming there are 19 stocks with exposures to Bitcoin including six blockchain-related indexes and exchange-traded funds, such as the Siren Nasdaq NexGen Economy ETF (ticker: BLCN). The stocks in the list are: Marathon Digital Holdings (MARA), Riot Blockchain (RIOT), MicroStrategy (MSTR), Silvergate Capital (SI), Square (SQ), PayPal Holdings (PYPL), Overstock.com (OSTK), Nvidia (NVDA), Investview (INVU), Ideanomics (IDEX), Tesla (TSLA), JPMorgan Chase (JPM), Visa (V), Bank of New York Mellon (BK), Facebook (FB), Mastercard (MA), Broadridge Financial Solutions (BR), IBM (IBM), and Coinbase Global (COIN).
We estimate that the total U.S. stocks' Market cap with crypto exposure constitute at least $1.6 trillion which corresponds to 7.3% of the total Nasdaq Market cap.
However, looking at an equally weighted portfolio of these stocks year-to-date, one can notice its relatively stable performance over the period despite Bitcoin's price plunge from its April 14 maximum of $63,574 to today's $34,620 to the tune of almost 55%. This fact constitutes an apparent, but so far underreported, unabating and unadjustable risk to the entire Nasdaq performance going forward.
Vladimir Rojankovski, MBA/LIFA