Time to Buy Crypto ETFs on Hindenburg-Led Block Plunge?
After India’s Adani Group, renowned short-seller Hindenburg attacked a US-based technology services firm Block SQ, which lost about 15% on March 23. Hindenburg Research said the company was allowing criminal activity with less stringent controls and was “significantly” inflating the Cash App user base, a key performance metric, according to CNBC.
Block offers payment and point-of-sale (POS) services, which include hardware and software to accept payments, streamline operations and analyze business information. Block’s payments and POS services include in-person payment, online payment, Square Cash, Square Register, Square Analytics, Square Deals and so on.
“Our 2-year investigation has concluded that Block has systematically exploited the demographics it claims to help,” Hindenburg said in his report. The research firm said Block’s Cash app thrived by serving unbanked customers, as quoted on CNBC.
Hindenburg’s comprehensive report includes screenshots of internal systems and messages from employees. Up to 35% of Cash App revenue comes from interchange fees, Hindenburg suspected. That’s about $892 million in revenue that the short seller believed should be limited by laws imposed on large financial institutions. Block evasions that limit by routing those revenues through a small bank, Hindenburg claimed, as reported by a CNBC article.
Against this backdrop, below we highlight a few ETF areas that stand to gain amid the Hindenburg-induced crisis in block stocks.
ETFs in focus
Block has solid exposure to crypto-centric ETFs such as Global X Blockchain ETF BKCH (Blokk has 15.60% weight in the fund), Fidelity Crypto Industry and Digital Payments ETF FDIG (weight approx. 12.60%), First Trust SkyBridge Crypto Industry & Digital Economy ETF CRPT (weight approx. 12.11%), ARK Fintech Innovation ETF ARKF (weight approx. 9.79%) and ARK Next Generation Internet ETF ARKW (weight approx. 7.56%). All of these ETFs lost in the 1.0% to 3.0% range on March 23 when Block’s decline hit them.
Time to Buy a Dip in Crypto & Payments ETFs?
Despite Block’s debacle, the aforementioned ETFs didn’t lose much as the Fed took a less hawkish tone this week. Investors expect the end of Fed rate hikes soon. This should strengthen growth investments in the coming days.
In particular, growth investments (such as technology, internet, payments, software and even blockchain and cryptocurrency) have suffered greatly in the past year due to higher prices. Companies have seen their valuations erode and have cut their cost structure through layoffs.
Bitcoin is up nearly 70% so far this year. Industry insiders who spoke to CNBC remain bullish, with one saying the world’s largest cryptocurrency could reach new highs. Bitcoin previously reached its all-time high of $68,990.90 in November 2021. Now the cryptocurrency is hovering around the 28,300 level. The ongoing rally is even defying regulatory issues. Therefore, the latest Block plunge could open a door for investors to play the above ETFs.
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Block, Inc. (SQ): Free Stock Analysis Report
ARK Next Generation Internet ETF (ARKW): ETF Research Reports
ARK Fintech Innovation ETF (ARKF): ETF’s research reports
Global X Blockchain ETF (BKCH): ETF Research Reports
First Trust SkyBridge Crypto Industry and Digital Economy ETF (CRPT): ETF Research Reports
Fidelity Crypto Industry and Digital Payments ETF (FDIG): ETF Research Reports
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