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Elon Musk Tips Bitcoin Table

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In journalism, we like to say that if it bleeds, it leads. So, it’s no surprise that in an otherwise ordinary day, one Elon Musk tweet that triggered a plunge in bitcoin prices is all anyone’s talking about—even in ETF land, where a U.S.-listed bitcoin ETF doesn’t even exist yet.

It’s been no secret that the Tesla founder is a huge fan of cryptocurrencies. Back in February, he disclosed a $1.5 billion position in bitcoin, as it’s been widely reported, and more importantly, said Tesla would begin accepting bitcoin as payment for cars. The enthusiasm for the crypto only grew from there, even though no one can actually confirm whether a Tesla has ever been purchased with bitcoin.

Then, today happened. Musk shared the tweet (below) with the world, basically saying the environment is now his biggest concern:

 

Source: Twitter

 

Bottom Falls Out

Bitcoin prices dropped 10% in early trading. Newshounds and social media chatter tried to make sense of this sudden change in sentiment. (Mind you, there are no indications at the moment that Musk is selling any of his bitcoin.)

Some argued this move was warranted in an “about time” sort of way, signaling influencers such as Musk were finally taking seriously the environmental impact of bitcoin mining, especially in this era of sustainable mandates and environmental concerns.

Others called the move a media stunt aimed at increasing the popularity and prices of other cryptos, such as Dogecoin, of which Musk is known to be a fan. One of the trending topics on Twitter this morning seems to support that argument: #DogeforTesla.

A chart about the actual estimated impact of bitcoin mining (originally created by ARK research in 2017, but circulated through the “fintwit” crowd today) tried to put the conversation into perspective, suggesting concerns are overblown, per below. (This, of course, is one firm’s view on the issue—and the data has not been updated since 2017—but there’s no consensus to the actual environmental impact of crypto mining.)

 

Source: Twitter

 

For every loud crypto fan, there’s an even louder crypto skeptic. Some are concerned about bitcoin’s growth potential—a growth some think hinges on widespread institutional adoption of the cryptocurrency. If Tesla is out, who else will follow?

But for ETF investors, the impact of all this is felt a little more indirectly since the Securities and Exchange Commission has yet to approve a bitcoin ETF here. (Read: US Bitcoin ETF Update: Filings Circle).

How Bitcoin Impact ETFs

One of the vectors for bitcoin access through an ETF in the U.S. today is blockchain funds—blockchain is the ledger technology that powers cryptocurrencies such as bitcoin.

The biggest, the Amplify Transformational Data Sharing ETF (BLOK), offers exposure to bitcoin specifically through an allocation to the Grayscale Bitcoin Trust (GBTC). GBTC was trading nearly 8% lower early Thursday.

That allocation isn’t big—it currently sits at about a 2.3% weighting—but it’s been one of its key differentiators in a segment that also includes funds such as the Siren Nasdaq NexGen Economy ETF (BLCN), the First Trust Indxx Innovative Transaction & Process ETF (LEGR) and the Capital Link Global Fintech Leaders ETF (KOIN), giving BLOK a high correlation to bitcoin prices. (There are others in this space, such as the recently launched VanEck Vectors Digital Transformation ETF (DAPP) and the Bitwise Crypto Industry Innovators ETF (BITQ).

When bitcoin prices soar, BLOK tends to lead this segment of ETFs in performance. But on a day like today, it also feels the pain of bitcoin’s price decline. A look at the chart below shows that dynamic:

 

 

Source: StockCharts.com

 

Impact On Thematic ETFs

Another way ETF investors may be feeling the impact of today’s price action—and of the volatility in bitcoin prices—is through funds that own stocks involved with crypto trading, such as Coinbase, or with the source of today’s action, Tesla. (You can what ETFs own a specific stock with our ETF Stock Finder Tool)

ETFs are traditionally diversified baskets of securities where single-stock risk is minimal, but individual stock action matters, especially depending on how much allocation a given fund has to that stock.

Consider the recent performance of COIN and TSLA, below:

 

Source: StockCharts.com

 

Coinbase (Ticker: COIN) and Tesla (Ticker: TSLA) are held across blockchain portfolios, so their weakness will be felt in these portfolios in varying degrees.

BLOK, for example, has a 2.7% allocation tied to COIN and a 0.5% allocation to TSLA. Competing ETF BLCN has a smaller allocation to COIN, at a 1.05% weighting, but none to TSLA. LEGR only includes TSLA with a small 0.7% allocation, but no exposure to Coinbase or to GBTC. And KOIN holds neither stock in its portfolio.

More broadly, today’s conversation about bitcoin also reaches disruptive technology portfolios—no surprise there. A fund like the ARK Innovation ETF (ARKK) holds both TSLA and COIN among its top 10 holdings, with allocations of 10.3% and 3.2%, respectively. The ARK Next Generation Internet ETF (ARKW) has TSLA, COIN and GBTC in its top mix, with a 10.2%, 3.2% and 5.6% allocation, respectively.

These are just some examples of how a single Musk tweet can trickle down its impact to ETFs, be they bitcoin-related, blockchain-related or, more broadly, thematic ETFs accessing the securities directly impacted by his actions.  

Contact Cinthia Murphy at cmurphy@etf.com

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