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Crypto and Stocks: Should Investors Be Worried About Linkage?

The use case for crypto has dropped dramatically in the past week.
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I wrote last week on Real Money Pro that I didn't like cryptocurrencies at those levels. The fact that bitcoin crashed to $30k, a level I (and almost everyone else) found interesting and rebounded from there, hasn't changed my mind.

I think the "use" case for crypto, especially from corporations, has dropped dramatically in the past week. You can now add renewed volatility and no more FOMO to the list of reasons I gave for avoiding crypto here.

Having said that, crypto should not impact the broader stock market.

Direct Linkage

Some companies, such as Coinbase (COIN) , would seem to be closely tied to crypto and crypto trading. It would seem logical that companies that are dependent on crypto trading, storage, etc., should be highly correlated with crypto. But that is a small subset of the market.

For full disclosure, I have no opinion on COIN other than it seems rational that it would trade linked to crypto.

Indirect Linkage

Some chipmakers benefit from demand from crypto miners. Some payment processors have bounced on the inclusion of crypto in their "currencies" accepted.

Tesla (TSLA) , according to recent filings and statements, still owns a significant block of crypto. These companies should be the first to stop trading in lockstep with crypto, because although they are impacted, it is typically only a fraction of the revenue these companies generate.

Guilt by Association

It seems that some Robinhood or ARK-type stocks are dragged down because they are associated with people who believe in crypto, despite those companies have nothing to do with crypto. There are already opportunities to buy these. (Yes, I am incredibly close to wanting to trade ETFs like (ARKK) from the long side, I'm not there yet, but getting closer by the day).

Selling What You Can, Not What You Need To

I suspect the vast majority of selling in stocks was tied to moves in ETFs and was likely driven by investors facing 30% or more declines in crypto deciding they'd rather buy that dip or not sell those assets when some stocks had barely budged. This hedge and wedge strategy rarely works out.

Final Thoughts

I would continue to reduce risk in crypto, but am looking to buy shares of companies that are being disproportionately dragged down by the crypto crash relative to their actual ties to crypto.