To The Moon

The S&P 500 recently embraced crypto by including $Coinbase Global, Inc.(COIN)$ as its first crypto-native member in May 2025. This is a significant development and opens up several potential trade opportunities, both directly and indirectly related to crypto.

In this article, I would like to share the breakdown of potential trade ideas while keeping in mind the current market dynamics (June 2025) and the inherent volatility of crypto.

Trading Coinbase (COIN) Stock

Increased Institutional Buying: Coinbase's inclusion in the S&P 500 means that index funds and ETFs tracking the S&P 500 are now forced to buy COIN. This passive buying pressure can provide a long-term tailwind for the stock.

Momentum Plays: The news of Coinbase's inclusion itself caused its shares to jump. Traders could look for short-term momentum plays around similar news or other positive developments for Coinbase, such as new product launches, regulatory clarity, or strong earnings reports.

If we looked at COIN using the RSI momentum strength, it has been in consistent positive momentum, though we are seeing consolidation in recent weeks, but we could see that it might be making an attempt to its previous highs.

As the bulls are still in control, we would be seeing attempt to make daily uptrend continuation, this would mean that there is much positive direction and sentiment from investors.

Volatility Trading: Crypto assets are known for their volatility, and Coinbase stock often correlates with general crypto market movements. Traders comfortable with higher risk might look for opportunities to profit from large price swings in COIN, potentially using options strategies (e.g., straddles or strangles) if implied volatility is attractive.

"Buy the Dip" Strategy: Given the long-term institutional adoption narrative, any significant pullbacks in COIN's price due to broader market corrections or crypto-specific downturns could be viewed as buying opportunities for long-term investors.

Broader Crypto Market Exposure (Indirectly through S&P 500)

Long S&P 500 Index Funds/ETFs: If you believe Coinbase's inclusion signals a broader positive trend for crypto adoption and its integration into traditional finance, being long S&P 500 index funds (e.g., $SPDR S&P 500 ETF Trust(SPY)$ , IVV) now gives you a tiny, indirect exposure to crypto. This is a very diversified and less volatile way to gain exposure.

Sector-Specific ETFs/Funds: While Coinbase is currently the only crypto-native company in the S&P 500, its inclusion could pave the way for others. Look for ETFs or funds that focus on fintech, blockchain technology, or companies with significant crypto exposure (even if they aren't purely crypto-native).

Trading Other Crypto-Related Stocks

"Next Coinbase" Candidates: Speculate on other crypto or blockchain companies that might eventually meet the S&P 500's inclusion criteria (e.g., market capitalization, profitability, liquidity). $Strategy(MSTR)$ is often cited as a potential candidate due to its large Bitcoin holdings.

Mining Companies/Hardware Providers: Companies involved in Bitcoin mining or providing hardware/software for blockchain infrastructure could also benefit from increased mainstream crypto adoption.

Companies with Crypto on their Balance Sheets: As institutional acceptance grows, more public companies might add cryptocurrencies to their balance sheets. Researching and investing in such companies could be a way to gain indirect crypto exposure.

Direct Cryptocurrency Trading

Correlation Plays: While the S&P 500's direct exposure to crypto is still small (Coinbase represents about 0.11% of the index), increased integration could lead to a higher correlation between traditional markets and crypto. Traders might look for opportunities where one market moves before the other, using that as a signal. For instance, if the S&P 500 is showing strong bullish momentum, it might suggest a positive sentiment that could spill over into Bitcoin or other major cryptocurrencies.

Event-Driven Trading: Keep an eye on regulatory developments, technological advancements within the crypto space (e.g., Ethereum upgrades), and other major news events that could impact crypto prices. The S&P 500's embrace of crypto could make such events more impactful on traditional financial markets as well.

Important Considerations for Any Crypto-Related Trade

Volatility: Cryptocurrencies are extremely volatile. Even with mainstream acceptance, large price swings are common. Manage your risk accordingly.

Regulation: The regulatory landscape for crypto is still evolving. Changes in regulations can significantly impact crypto prices and the businesses operating in the space.

Cybersecurity Risks: Crypto exchanges and platforms are susceptible to hacking and other cyber threats.

Diversification: Do not put all our eggs in one basket. Diversify our portfolio across different assets and sectors.

Risk Management: Always use stop-loss orders and define our risk-to-reward ratio for every trade.

Research: Do our own thorough research before making any investment decisions. Understand the underlying technology, market dynamics, and specific company fundamentals.

Correlation Of COIN, MSTR With S&P 500

If we were to look at how COIN and MSTR stock movement recently with S&P 500, we will also need to consider the correlation of Bitcoin with S&P 500, as over the correlation between the S&P 500 and crypto has generally increased since 2020, driven by greater institutional adoption and the growing perception of crypto as a risk-on asset.

While not always perfectly aligned, they tend to move in the same direction, especially during periods of market stress, with crypto often exhibiting more extreme price swings.

The correlation between the S&P 500 and cryptocurrencies, particularly Bitcoin, is a dynamic and evolving relationship. It is not a static correlation, and it can vary significantly depending on market conditions, investor sentiment, and macroeconomic factors.

Historical Trends

Early Years (Pre-2020): Bitcoin and cryptocurrencies were largely uncorrelated with traditional financial markets like the S&P 500. Bitcoin was often viewed as a niche, speculative asset, sometimes even as "digital gold" or an inflation hedge, with minimal ties to equities.

Post-2020 Shift: A significant shift occurred around 2020. The correlation between Bitcoin and major equity indices, including the S&P 500 and Nasdaq-100, turned increasingly positive. This means they started moving in the same direction more frequently.

Recent Data (Early 2025): Investopedia's analysis indicates that over the past five years (from early 2020 to late May 2025), Bitcoin and the S&P 500 moved in the same direction about 40% of the time, showing a correlation of around 0.38. For Coinbase (COIN) specifically, its stock price has followed the S&P 500's movements about half the time (correlation of 0.53) since its IPO in 2021.

Periods of Market Stress: The correlation tends to strengthen during periods of economic uncertainty or market stress. For example, during the initial stages of the COVID-19 pandemic in 2020 and throughout 2022, the positive correlation became more pronounced. This suggests that in "risk-off" environments, both traditional stocks and cryptocurrencies can experience simultaneous sell-offs.

Recent Fluctuations: While the general trend has been towards increased correlation, there can be periods where it temporarily declines. For instance, in February 2025, data showed the correlation between Bitcoin and the S&P 500 briefly hitting zero, suggesting a period of independence before potentially re-establishing a connection.

Bitcoin as an "Amplified" S&P 500

Many analyses suggest that Bitcoin often behaves like an amplified or leveraged version of the S&P 500. This means it typically moves in the same direction as the S&P 500 but with greater magnitude. For example, if the S&P 500 goes up by 1%, Bitcoin might go up by 3-5%, and vice-versa during downturns. This high beta characteristic means it can offer amplified returns but also amplified losses.

Factors Influencing Correlation

Institutional Adoption: As more institutional investors, money managers, and traditional financial firms enter the crypto space (e.g., through Bitcoin ETFs, direct investments), the interconnection between crypto and traditional markets strengthens. These institutions often view crypto as part of their broader investment portfolio, leading to more synchronized movements.

Market Sentiment: Investor sentiment plays a crucial role. When there's optimism about the economy, investors tend to take on more risk, flowing into both stocks and cryptocurrencies. Conversely, during fear or uncertainty, there might be a flight to safety, causing both markets to decline.

Macroeconomic Factors: Monetary Policy: Loose monetary policy (low interest rates, quantitative easing) can fuel investor appetite for higher-risk assets like cryptocurrencies and growth stocks. Conversely, monetary tightening can lead to asset depreciation across the board.

Economic Conditions: Broader economic health, as measured by GDP and other indicators, influences investor confidence and thus impacts both traditional equities and crypto.

Inflation: While Bitcoin was initially thought to be an inflation hedge, its performance in 2022 (when it dropped significantly during high inflation) challenged this narrative.

Liquidity and Market Structure: The increasing liquidity of crypto markets, along with growing access points like ETFs and futures, allows for easier liquidation. This can contribute to simultaneous sell-offs in stressed environments as investors seek to raise cash.

Regulatory Changes: Significant regulatory news or changes can impact both crypto markets directly and how traditional finance interacts with them, influencing correlations.

Idiosyncratic Crypto Factors: While macroeconomic factors have a growing influence, unique crypto-specific events (e.g., major hacks, platform collapses like FTX or Terra/Luna) can still cause significant price movements that might not directly correlate with the S&P 500.

Summary

The S&P 500's inclusion of Coinbase is a significant milestone, signaling growing legitimacy for the crypto space. While it introduces new opportunities, it also means traditional portfolios now have a (albeit small) stake in a more volatile asset class. Careful consideration and risk management are crucial for any trades in this evolving landscape.

The inclusion of Coinbase in the S&P 500, while a small direct exposure, further solidifies this growing integration and suggests that the S&P 500 will have a slightly more direct, albeit still minimal, exposure to crypto market dynamics.

Appreciate if you could share your thoughts in the comment section whether you think crypto stocks would slowly make their way into S&P 500 like Coinbase?

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.