In the world of digital currency, bitcoin usually takes most of the headlines simply because it is the largest member of the space, as measured by market capitalization.
As a result, crypto-correlated equities are often discussed through the lens of bitcoin. However, ethereum is relevant in this conversation, too, and its widely anticipated merge could have implications for some crypto-related stocks. Ethereum is the blockchain platform that’s the foundation of ether — the second-largest digital currency behind bitcoin.
Ethereum’s merge, or upgrade, could also be relevant for exchange traded funds such as the Invesco Alerian Galaxy Crypto Economy ETF (SATO) and the Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF (BLKC). Both funds are full of stocks that undoubtedly deserve the crypto-correlated label.
A new report by Cowen analyst Stephen Glagola indicates that the ethereum merge could be relevant for a variety of equities in the crypto ecosystem.
“At the heart of the upgrade is a change in the mechanics of processing transactions from the current ‘proof of work’ system to a method based on ‘proof of stake,’ which is designed to be far less energy intensive. This could boost adoption of the crypto by investors concerned about environmental, social, and governance (ESG) factors, the team at Cowen said,” reported Jack Denton for Barron’s.
The ethereum merge could have implications for crypto exchange operator Coinbase (NASDAQ:COIN), among others. SATO, which follows the Alerian Galaxy Global Cryptocurrency-Focused Blockchain Equity, Trusts and ETPs Index, allocates 3.69% of its weight to Coinbase.
“We believe Coinbase’s ability to establish a strong delegated proof of stake business on [Ethereum’s proof of stake] Beacon Chain vs. other centralized competitors reinforces the view that the company is building subscription & services revenue outside of just the transaction revenue on the exchange/retail brokerage business,” noted Cowen’s Glagola.
The research firm added that some well-known semiconductor stocks with crypto ties could benefit from the merge. Those include Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA), both of which are members of the BLKC and SATO portfolios.
The merge is slated to be completed by September 20. It’s not widely expected to affect bitcoin miners, many of which reside in both BLKC and SATO, but the Cowen team noted the event could spotlight the energy-intensive nature of bitcoin mining. That could actually be a benefit to those miners that are taking steps to harness renewable energy.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.