JPMorgan set to launch a cryptocurrency ETF-style basket

JPMorgan [JPM] is the latest US banking giant to reveal its intention to join the cryptocurrency revolution. The bank’s “Cryptocurrency Exposure Basket” is similar to a cryptocurrency exchange-traded fund (ETF), with a focus on companies involved in crypto, rather than a direct investment in digital currencies.

The 11 constituent stocks are: MicroStrategy [MSTR] with a 20% weighting, Square [SQ] (18%), Riot Blockchain [RIOT] (15%) Nvidia [NVDA] (15%), PayPal [PYPL] (10%), Advanced Micro Devices [AMD] (5%), Taiwan Semiconductor Manufacturing ADR [TSM] (5%), Intercontinental Exchange [ICE] (4%), CME Group [CME] (4%), Overstock.com [OSTK] (2%) and Silvergate Capital [SI] (2%).

JPMorgan says its selected stocks “operate businesses that we believe to be, directly or indirectly, related to cryptocurrencies or other digital assets, including as a result of bitcoin holdings, cryptocurrency technology products, cryptocurrency mining products, digital payments or bitcoin trading.”

"[Stocks selected] operate businesses that we believe to be, directly or indirectly, related to cryptocurrencies or other digital assets" - JPMorgan

JPMorgan’s cryptocurrency ETF basket follows Goldman Sachs’ [GS] relaunch of its cryptocurrency trading desk due this month, and Bank of New York Mellon’s February announcement that it will transact in bitcoin and other cryptocurrencies on behalf of its asset-management clients.

We take a look at the recent performance and outlook of some of the JPMorgan Cryptocurrency Exposure Basket’s top constituents.

MicroStrategy

MicroStrategy, led by CEO Michael Saylor, is a major backer of bitcoin. In a press release on 24 February, it said it held 90,531 bitcoins at a cost of $2.171bn. “The Company remains focused on our two corporate strategies of growing our enterprise analytics software business and acquiring and holding bitcoin,” said Saylor, who added: “The company now holds over 90,000 bitcoins, reaffirming our belief that bitcoin, as the world’s most widely-adopted cryptocurrency, can serve as a dependable store of value."

MicroStrategy added to its rapidly growing holdings by buying another $15m worth of bitcoin on Friday 12 March, reports Markets Insider's Will Daniel.

MicroStrategy's share price has really taken off this year, zooming to a 52-week high at $1,315.00 on 9 February, an increase of 610.77% in three months. Since then, though, the shares fell back to $620.24, before recovering to close on Monday at $769.01. Wall Street analysts' average 12-month price target on MicroStrategy is $276.00, which represents a possible downside of 64.11% on Monday's closing price. There is currently one buy and four sell ratings on the stock, for a consensus sell, according to MarketBeat.

Square

US mobile payment firm Square has also been investing in bitcoin, purchasing $170m of the cryptocurrency last month, raising its holdings to circa 5% of its cash. This follows swiftly from a $50m purchase of bitcoin in October. Reflecting the company’s – and CEO Jack Dorsey’s (pictured) – belief in the digital currency, CFO Amrita Ahuja says “bitcoin has the potential to be a native currency of the internet”.

Cryptocurrency is a fast-growing part of its business through its peer-to-peer payments platform, Cash App, which enables users to buy and sell assets like bitcoin and stocks. Monthly users of Cash App leapt by 50% to 36 million year-on-year in December, report Bloomberg, while Square reported a surge of bitcoin transactions through Cash App in January, with over 3 million users – including 1 million first-time users. Square unveiled a 141% jump in Q4 revenue to $3.16bn last month.

Square's share price has taken off in the last 12 months, rising 508.75% from $41.27 a year ago to $251.23 at Monday's close, just 12.72% off the all-time high of $283.19 achieved on 16 February. Analysts covering the stock with the Wall Street Journal have an average price target of $269.05, which is 7.09% above Monday’s close. Among the 46 analysts covering Square, 24 rate it a buy, with one overweight, 17 hold, one underweight and three sell ratings.

PayPal

Online payment company PayPal further underlined its move into cryptocurrency after confirming last week that it will acquire the crypto security firm, Curb. The Tel-Aviv based company provides cloud-based digital-asset security technology, and will help PayPal “accelerate and expand” its move into cryptocurrencies, reports CNBC. The news follows PayPal’s move in October to enable more than 300m of its US customers to buy and sell bitcoin, ethereum and litecoin, ahead of a global rollout this year.

PayPal’s share price is up 174.95% over the last year to 17 March's close, circa 20% off its all-time high of $309.14 achieved on 16 February. The stock’s average price target is $309.02. PayPal has an overwhelming buy consensus among analysts following the stock, with 35 buy, five overweight, seven hold and one sell rating, according to the WSJ.

Cryptocurrency ETF bounces back

Blockchain is the best performing theme over the last month across 34 disruptive sectors on our thematic screener, registering a gain of 8.95% over the last month (as of 17 March’s close). By contrast, the S&P 500 index gained just 0.52% in the same period.

The best-performer over the last week of three funds tracked in the cryptocurrency ETF is the Amplify Transformational Data Sharing ETF [BLOK], with a gain of 5.55%. While the recent performance isn’t much to write home about, Amplify has registered an impressive rise of 332.45% in the 12 months to 17 March’s close. It invests at least 80% of its net assets in companies involved in the development and utilisation of blockchain technologies, with MicroStrategy (5.50%), Riot Blockchain (4.62%), Square (3.15%) and PayPal (2.71%) among its top holdings (as of 16 March).