Coinbase Global will become the first cryptocurrency exchange platform to join the S&P 500 index later today, which means investors could soon have shares in the crypto company without realising it.
Passive investors in the stock market who hold common tracker funds of the S&P 500 – an index of 500 of the biggest listed companies in the US – will, as of this week, have a small portion of their money allocated to the company, which is used to buy and sell cryptocurrencies.
That also applies to those who do not invest cash themselves, but have pensions which contain US holdings.
Passive investing through tracker funds tends to be popular as it is low cost, easy to manage and gives widespread diversification.
Index funds, or tracker funds, automatically buy and sell shares in companies to reflect their size and existence within the index they are mimicking. The premise is that as the index grows, so too will the funds invested in it, without the individual investor having to worry about which specific companies will thrive.
Within the S&P 500 the biggest firms are Microsoft, Nvidia and Apple; by market capitalisation, Coinbase will be more comparable to hotel chain Hilton, which ranks around 160th in the index. In other words, while around six per cent of a tracker fund might be allocated towards Apple, around 0.1 per cent would go to Coinbase shares now based on size.
One alternative which may see people get slightly greater exposure to Coinbase are if they use a so-called equal-weighting index – which in this case would buy the same amount of shares of all 500 companies regardless of how big they were.
It marks a significant step for the cryptocurrency arena, with Coinbase the first and only such platform included – and with the firm having been in legal wrangles with the US Securities and Exchange Commission (SEC) earlier this year before charges were dropped.
And the news comes fast on the heels of bitcoin breaching the $100,000 mark again recently.
Coinbase will replace credit card issuer Discover Financial in the index, with Discover merging with fellow card company Capital One.
“This is a major milestone, not just for Coinbase, but also for the entire crypto industry,” said Alesia Haas, Coinbase CFO. “Joining this prestigious index reflects how far Coinbase and the industry have come and is a signal of where the world is heading.”
Coinbase has a market capitalisation of more than $67bn (£50bn). Shares are up around seven per cent year to date, including a huge surge of around a third in the past week as it became clear the company would be included in the S&P 500.
Last week the company suffered a cyber attack which it expects to cost it up to $400m (£301m), after hackers gained access through external contractors and employees. Coinbase refused to pay the ransom demands and instead said they would pay back anybody who lost money as a result of the scam.
