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: These companies hopped on the crypto train when times were booming. Which are exposed in a downturn?

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During recent cryptocurrency booms, companies have been quick to jump on the trend, whether by reorienting their entire businesses around the buzzy theme, building meaningful crypto features alongside more traditional operations or dipping their toes in the water to ensure they wouldn’t get left behind.

When times were good, companies liked to talk up their crypto involvement, however marginal. But with crypto prices now sagging, it’s worth taking stock of which companies were actually seeing meaningful contributions from their crypto efforts—and which could be in for some pain in a tough climate.

Bitcoin
BTCUSD,
+0.92%

has tumbled 53% year to date through Friday afternoon trading, while the S&P 500 index
SPX,
+0.14%

has lost 18.1%, and has plunged 68% from its record close in November 2021. The selloff comes after bitcoin had run up 60% in 2021 and rocketed 305% in 2020.

MarketWatch took a look at 13 companies with crypto exposure in various forms. Below we break down how digital assets affect those businesses.

Some companies are all about crypto…

Company

Ticker

Crypto exposure

Coinbase Global Inc.

COIN

Coinbase is all in on crypto, generating the bulk of its revenue from trading and the rest from other crypto-related activities like staking and custodial services.

Marathon Digital Holdings Inc.

MARA

Once a patent company, Marathon now operates bitcoin mining rigs. In addition to generating its revenue from crypto mining, the company holds some of the bitcoin it mines as assets.

Riot Blockchain Inc.

RIOT

Like Marathon, Riot pivoted to bitcoin mining in recent years. The bulk of its revenue is from bitcoin mining, though it also generates hosting and engineering revenue. The company holds bitcoin on its balance sheet.

Others are involved to a lesser extent

Company

Ticker

Crypto exposure

Advanced Micro Devices Inc.

AMD

AMD chips have been used for crypto mining, but the company’s CEO said late last year said crypto was not a “meaningful driver” of the GPU business.

Block Inc.

SQ

The fintech company lets its Cash App users buy bitcoin through the mobile wallet. Bitcoin accounts for about 3% of gross profit.

Fidelity National Information Services Inc.

FIS

The merchant-acquiring company has said it served four of the top five crypto exchanges. A Baird analyst pegs crypto exposure at less than 5% of merchant-segment revenue.

Mastercard Inc.

MA

Mastercard has card offerings for crypto wallets looking to help customers convert crypto into fiat currency for quick spending. Baird estimates crypto represents “well less than 1% of total revenue.”

MicroStrategy Inc.

MSTR

The software company held about 129,699 bitcoins as of late June but acquired them at an average price considerably higher than current levels.

Nvidia Corp.

NVDA

Nvidia’s dedicated crypto-mining chip brought in “nominal” revenue in the latest quarter compared with $155 million a year earlier.

PayPal Holdings Inc.

PYPL

Like Block, PayPal lets users buy, sell, and hold cryptocurrency, but analysts see the company’s crypto exposure as less than Block’s.

Robinhood Markets Inc.

HOOD

The brokerage company generated 18% of revenue from crypto-related activity in its last-reported quarter.

Signature Bank

SBNY

As the “leading depository bank” for digital asset companies, Signature Bank had $29 billion in deposits from the digital-currency ecosystem at the end of the first quarter.

Visa Inc.

V

Like Mastercard, Visa works on card offerings with crypto exchanges and has various crypto-related services. Baird estimates that “well less than 1% of total revenue” comes from crypto.

AMD and Nvidia

AMD
AMD,
+0.57%

and Nvidia
NVDA,
+0.03%

make chips that can be used for crypto mining, though the companies don’t explicitly break out how much revenue they get from such applications.

Nvidia said that revenue from its dedicated crypto-mining chip was “nominal” in its quarter, compared with $155 million a year before. The prior period’s $155 million crypto-revenue total would have been about 1.9% of the latest quarter’s (larger) overall revenue total, so Nvidia’s disclosure of a “nominal” contribution suggests crypto was an even smaller portion of overall revenue in the most recent quarter.

“The extent to which cryptocurrency mining contributed to gaming demand is difficult for us to quantify with any reasonable degree of precision,” Nvidia Chief Financial Officer Colette Kress said on the latest earnings call. “The reduced pace of increase in Ethereum network hash rate likely reflects lower mining activity on GPUs. We expect a diminishing contribution going forward.”

AMD executives didn’t mention crypto once on the company’s latest earnings call in May or during the analyst-day presentation in June, according to transcripts. When asked at a December investor conference how crypto was impacting the market for AMD graphics processing units in a period of tight supply, Chief Executive Lisa Su said “it’s a very different market than it was a few years ago with crypto” and that she didn’t see crypto as a “meaningful driver” of that business.

Nvidia declined to comment. An AMD spokesperson said that the company was in a quiet period, with earnings scheduled to be reported on July 26, and couldn’t comment beyond the historical statement referenced above.

Block

Block Inc.
SQ,
-1.90%

has the greatest cryptocurrency exposure among traditional payment-technology names, as the company allows users to buy and sell bitcoin through its Cash App mobile wallet. Bitcoin buzz helped Block gain momentum amid strong trading interest in early 2021, and Chief Executive Jack Dorsey has been a vocal proponent of the cryptocurrency.

On paper, it might seem as if Block is hugely dependent on crypto activity: The company reported $10.0 billion in GAAP bitcoin revenue last year, accounting for about 57% of overall revenue. But the bitcoin revenue figure is misleading in Block’s case since it comes with minimal profit from the spread.

In general, Block executives and the analysts who cover the stock focus on gross-profit figures instead of revenue across the company’s business lines, and on that basis, bitcoin accounted for about 5% of company gross profit last year, or about 3% in the first quarter.

“They have a visibility issue more so than they have a fundamental issue,” Mizuho analyst Dan Dolev told MarketWatch. “There’s so much good stuff about [Block] that people are missing because of this bitcoin-centric [narrative].”

Block executives see bitcoin as an important driver for the Cash App. “Bitcoin monthly actives have brought in significantly more inflows to the ecosystem” than those who only use the mobile wallet for peer-to-peer money transfers,” Cash App Lead Brian Grassadonia said at the company’s May investor day. “It’s also a monetization lever where money isn’t actually leaving the ecosystem, so we have the opportunity to monetize those inflows multiple times.”

Bitcoin miners

Bitcoin-mining companies, including Riot Blockchain Inc.
RIOT,
+4.73%

and Marathon Digital Holdings
MARA,
+22.47%
,
are fully exposed to cryptocurrencies, as their businesses involve “finding and securing cheap and hopefully renewable power, buying lots of the best bitcoin mining rigs available, and keeping them cool,” notes D.A. Davidson analyst Chris Brendler.

Don’t miss: Bitcoin miners struggle with crypto’s price decline, rising energy costs and increase in mining difficulty.

Marathon Digital classifies all its revenue as mining-related, while Riot breaks out smaller portions that are from hosting and engineering. Other mining stocks include Core Scientific Inc.
CORZ,
+3.85%

and CleanSpark Inc.
CLSK,
+2.90%

While some bitcoin mining companies began that way, others pivoted as cryptocurrencies turned trendy. Riot was once a tiny animal healthcare company, and Marathon was once a patent business.

When bitcoin prices were surging last fall, the companies could see gross margins above 90%, Brendler said, but now their gross markets are down to 60%. “They’re still very profitable, but the market is worried that bitcoin could go lower,” he told MarketWatch.

The biggest problem for the mining names, in his view, is that they’re very capital intensive. That’s partly because the companies need to keep spending in order to keep their market share, but also because they like to hold bitcoin that they mine so that investors have more direct exposure to the price of bitcoin through their stocks, Brendler continued. But the equity markets have turned negative for bitcoin miners, and the lending markets have also soured, making it so “the best miners with the best balance sheets” are best positioned to survive, he said.

Coinbase

Coinbase Global Inc.
COIN,
+6.56%

is all about cryptocurrency, as it generates nearly 90% of its revenue from transactions and the rest from various subscription and services efforts. The company generated $1.2 billion in transaction revenue in the first quarter, down 56% from the fourth quarter. Subscription and services revenue, including from blockchain rewards and custodial fees, declined 20% in aggregate.

See also: Coinbase sees crypto trading fall off

“It’s super correlated and that’s what most people don’t understand,” Mizuho’s Dolev said. “People thought this was something they could do outside crypto but it ends up being the same.”

FIS, Mastercard, and Visa

Older-line payments companies Visa Inc.
V,
+0.38%
,
Mastercard Inc.
MA,
-0.11%
,
and Fidelity National Information Services Inc.
FIS,
+0.69%

have even less exposure to the crypto world than a company like Block, according to analysts.

Baird’s David Koning notes that Visa saw $3.5 billion in payment volume last fiscal year related to crypto-linked card programs, which let people link their crypto wallets to their Visa credentials for spending purposes. That represented about 0.03% of the company’s total volume, he wrote. “Visa also likely has a modest amount of services related to cryptocurrencies,” Koning noted.

Visa declined to comment further on its crypto exposure.

Mastercard probably has similar exposure, Baird’s Koning added, and crypto likely represents “well less than 1% of total revenue” for both companies.

A Mastercard spokesperson said the company couldn’t comment on the estimate as Mastercard doesn’t report that figure.

Meanwhile, FIS provides merchant-acquiring services for crypto wallets, but crypto is “very much on the margins” for the company, according to MoffettNathanson’s Ellis. Baird’s Koning estimates that crypto could account for less than 5% of merchant-segment revenue, and perhaps about 1% of overall revenue.

An FIS spokesperson noted that the company doesn’t break out crypto revenue but pointed to past comments from President Stephanie Ferris indicating that FIS served four of the top five crypto exchanges as of the fourth quarter.

Microstrategy

Microstrategy Inc.
MSTR,
+1.49%

makes analytics software, but the company has become a cryptocurrency play thanks to its sizable bitcoin holdings. The company held about 129,699 bitcoins as of June 28, 2022. It acquired them for an aggregate purchase price of roughly $3.98 billion and at an average purchase price of about $30,664 each, inclusive of fees. The price of bitcoin is now below $22,000.

PayPal

PayPal Holdings Inc.
PYPL,
-1.81%

lets users buy, sell, hold and transfer cryptocurrencies, offering a wider variety of crypto assets than what bitcoin-focused Block allows. But PayPal is also a bigger business, which helps mitigate the impact of cyrpto exposure to its business.

“PayPal’s exposure to crypto would be lower than Block’s (and Block’s is only about 2% of gross profit),” MoffettNathanson analyst Lisa Ellis told MarketWatch, though its exposure is greater than what Visa, Mastercard, and FIS see. “PayPal’s yields/take rates on a crypto transaction are similar to Block’s, but PayPal is just larger and newer to crypto so it is a smaller part over overall revenues.”

PayPal doesn’t break out crypto impacts in its financials.

While D.A. Davidson’s Chris Brendler was “hopeful that PayPal’s crypto launch would be more meaningful to the numbers,” he hasn’t seen signs of it manifesting in the company’s take rate. Because PayPal didn’t see big crypto benefits during better times for digital assets, “the good news is, on the way down, it won’t be a headwind for PayPal,” he added.

Robinhood

Robinhood Markets Inc.
HOOD,
-0.28%

generated $54 million in crypto revenue during the first quarter, representing 18% of the company total. The company noted on its latest conference call that it completed the rollout of its crypto wallets during the first quarter, while also adding four new crypto assets to its selection and agreeing to acquire U.K-based crypto platform Ziglu.

Signature Bank

Signature Bank
SBNY,
+0.08%

is “the leading depository bank” for the digital-currency ecosystem, according to Raymond James analyst David Long, and its shares have dropped more than 40% this year as the crypto industry has come under pressure.

The company had $29 billion in deposits from the digital-currency ecosystem as of the end of the first quarter, Long wrote, accounting for nearly 27% of overall deposits.

For his part, he sees Signature’s recent stock selloff as “overdone,” noting that the bank “had more than $26 billion of cash on its balances sheet and capacity to borrow.” In other words, “even if every deposit here was withdrawn, which likely means the value of Bitcoin approaches $0, Signature has the liquidity to meet redemptions.”

Other financial companies involved with digital assets include investment-management firm Galaxy Digital Holdings Ltd.
BRPHF,
+5.44%
,
and crypto broker Voyager Digital Ltd.
VYGVF,
-11.93%

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