Bitcoin, Block shares more correlated than they should be: Berenberg

The upcoming bitcoin halving could be a boon for the share price of payment company Block, as Berenberg Capital Markets analysts argued bitcoin’s impact on the stock is more than it should be.

The correlation between Block shares and the price of bitcoin — standing at 0.61 — “appears to be a case in which investors’ perception of the impact of bitcoin on the company’s prospects matters more than the reality,” the analysts said in a Wednesday research note.

A potential price boost to bitcoin with the upcoming halving set for April 2024 — an event when rewards offered to bitcoin miners are cut in half — could support Block’s stock price, the note adds.

History would suggest bitcoin’s price could spike in the upcoming halving’s aftermath, industry watchers have said. Matt Lason, chief investment officer at crypto hedge fund Globe 3 Capital, told Blockworks in July that such events “serve as a great reminder for everyone of the power of bitcoin’s monetary policy and the true value of scarcity in an inflationary world.”

Block — formerly known as Square — was founded by Jack Dorsey and Jim McKelvey in 2009. Square remains the name of its payments platform for businesses, while mobile payment service Cash App is another one of its main offerings.

The company’s stock price was $45.39 at 1 pm ET Thursday — down about 30% year to date. Berenberg’s price target for Block shares is $75.

A questionable correlation?

Investors have used stock in Block as a means of gaining bitcoin exposure since the company announced in November 2017 that it would facilitate BTC trading for customers, according to Berenberg analyst Mark Palmer.

“There are more equities that provide that kind of exposure now, but Block stands out because of its high profile and large market capitalization,” Palmer told Blockworks.

Stock prices with a correlation to bitcoin higher than Block’s 0.61 correlation include Coinbase and MicroStrategy — at 0.93 and 0.90, respectively, he added.

Block officially launched bitcoin trading on Cash App in 2018. The total sale amount of bitcoin sold to customers of the mobile payment service during this year’s second quarter jumped 34% year over year to $2.39 billion.

The company invested $50 million in bitcoin during the final quarter of 2020 and an additional $170 million in the crypto asset during the first three months of 2021. The fair value of the company’s bitcoin investment was $245 million, as of June 30.

Block’s affiliates include Spiral, an independent team focused on open-source work around the Bitcoin blockchain and TBD, a builder of decentralized platforms, protocols and tools.

Still, Cash App reported just $44 million in gross profit from bitcoin transactions in the second quarter — a fraction of its total gross profit was $968 million in the three-month span.

The bitcoin that Block held on its balance sheet at the mid-year point — when adjusted for fair market value — represented 0.79% of its total assets, Berenberg analysts said.

“The impact of bitcoin on Block’s operating performance is not all that significant at this point,” the Wednesday Berenberg note states.

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