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Time to Buy Crypto ETFs on Hindenburg-Led Block Plunge?

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After India’s Adani Group, renowned short seller Hindenburg attacked U.S.-based technology services firm Block (SQ - Free Report) , which lost about 15% on Mar 23. Hindenburg Research said that the company permitted criminal activity with less strict controls and that it  “highly” inflates Cash App’s transacting user base, a key metric of performance, per CNBC.

Block provides payment and point-of-sale (POS) services, which include hardware and software to accept payments, streamline operations and analyze business information. Block’s payments and POS services include In-Person Payments, Online Payments, Square Cash, Square Register, Square Analytics, Square Appointments and so on.

“Our 2-year investigation has concluded that Block has systematically taken advantage of the demographics it claims to be helping,” Hindenburg said in its report. The research firm said Block’s Cash App flourished on serving “unbanked” customers, as quoted on CNBC.

Hindenburg’s all-embracing report includes screenshots of internal systems and employee messages. Up to 35% of Cash App’s revenues are derived from interchange fees, Hindenburg suspected. That’s around $892 million in revenues that the short seller believed should be capped by laws levied on large financial institutions. Block dodges that cap by routing those revenues through a small bank, Hindenburg alleged, as reported by a CNBC article.

Against this backdrop, below we highlight a few ETF areas that could win amid the Hindenburg-induced crisis in Block shares.

ETFs in Focus

Block has solid exposure to crypto-centric ETFs like Global X Blockchain ETF (BKCH - Free Report) (Block has 15.60% weight in the fund), Fidelity Crypto Industry and Digital Payments ETF (FDIG - Free Report) (weight about 12.60%), First Trust SkyBridge Crypto Industry & Digital Economy ETF (CRPT - Free Report) (weight about 12.11%), ARK Fintech Innovation ETF (ARKF - Free Report) (weight about 9.79%) and ARK Next Generation Internet ETF (ARKW - Free Report) (weight about 7.56%). All these ETFs lost in the range of 1.0% to 3.0% on Mar 23 as Block’s slump hit them.

Time to Buy the Dip in Crypto & Payments ETFs?

Despite Block’s debacle, the aforementioned ETFs did not lose much as the Fed adopted a less-hawkish tone this week. Investors expect the end of Fed rate hikes soon. This should bolster growth investing in the coming days.

Notably, growth investing (like technology, internet, payments, software, and even blockchain and cryptocurrency) has suffered a lot in the past year due to higher rates. Companies have seen their valuations eroding and have cut their cost structure through layoffs.

Bitcoin has rallied nearly 70% so far this year. Industry insiders who spoke to CNBC remain bullish, with one saying the world’s biggest cryptocurrency could reach new heights. Bitcoin earlier hit its all-time high of $68,990.90 in November 2021. Now the cryptocurrency is hovering around the 28,300 level. The ongoing rally is even defying regulatory issues. Hence, the latest Block plunge could open up a door for investors to play the above-said ETFs.


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