Ethereum Merger Not Yet Boosting Crypto Stocks
Ethereum’s recently completed merger – one of the more anticipated cryptocurrency events in recent times – has yet to light a fire under crypto-correlated stocks, but there is still hope that the merger will have positive mid- to long-term implications for crypto stocks.
If that scenario plays out, it could trigger upside for exchange-traded funds such as Invesco Alerian Galaxy Crypto Economy ETF (SATO) and Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF (BLKC).
One reason why the Ethereum merger has yet to pick up stakes in BLKC and SATO is the fact that the bulk of the listed crypto miners, including those residing in these ETFs, mine bitcoin, not ether.
“Because the primary change is the transition from mining to staking, the merger will affect Ethereum miners the most out of the companies in the ecosystem. However, most public crypto mining companies focus on mining Bitcoin with the exception of HIVE Blockchain Technologies (HIVE CN) and Hut 8 Mining Corp (HUT CN). Fortunately, ETH mining equipment is much cheaper and flexible than BTC mining equipment, so today’s ETH mining equipment can be reused. ETH is mined using graphics processing units (GPUs), which are standard hardware and can be used for multiple purposes , including the mining of various digital currencies,” noted Alerian analyst Roxanna Islam.
The point about ether mining requiring GPUs is relevant to investors considering SATO because that ETF holds shares in Nvidia (NASDAQ: NVDA ) and Advanced Micro Devices (NASDAQ: AMD ) — the two dominant makers of GPU chips.
There are other potential longer-term benefits from the Ethereum merger that could accrue to BLKC and SATO, including the possibility of more revenue for crypto exchanges like Coinbase (NASDAQ: COIN ).
“The transition from mining to staking should benefit companies that either participate in staking or act as a platform for staking,” Islam added. “Staking involves depositing ETH to act as a validator, which can then produce rewards based on the balance deposited (similar to earning interest in a bank). To make the process easier, platforms like Coinbase (COIN) can facilitate staking in exchange for a percentage of the return. The company has already seen an increase in revenue from its staking services in recent quarters from ETH and several other digital currencies.”
SATO, which benchmarks the Alerian Galaxy Global Cryptocurrency-Focused Blockchain Equity, Trusts and ETPs Index (Index), allocates 3.35% of its weight to Coinbase, making the stock the ETF’s seventh-largest holding.
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The opinions and forecasts expressed herein are solely those of Tom Lydon and may not materialize. Information on this website should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any product.
