S&P 500 Is Getting More Bitcoin Exposure as Block Joins the Club

Block

Jack Dorsey, middle, is know as the “Block Head” at his company, which is set to join the S&P 500 today.

Block, Jack Dorsey’s Bitcoin-focused payments company, is set to join the S&P 500 on Wednesday, a milestone moment for both the company and and foray further into crypto for the benchmark index.

Block (XYZ), which was rebranded from Square in 2021, is the second blockchain company to join the club after cryptocurrency exchange Coinbase Global (COIN) was added to the index in mid-May. That means index fund investors will get a modest bump in exposure to the world’s largest cryptocurrency bitcoin (BTCUSD).

The company takes the spot vacated by Hess Corp., which was acquired by Chevron (CVX) in a deal that closed July 18. It’s the third addition of the month, following The Trade Desk (TTD) and Datadog (DDOG).

Since the announcement of Block’s inclusion late Friday, the shares have risen 9%. Block’s stock has benefited from an index effect, which refers to directional pressure on stocks when a company is added to, or removed from, the S&P 500 and other indexes.

The most recent research report on the matter from S&P Dow Jones Indices, which studied the price impact of index additions and deletions from 1995 to June 2021, showed that it isn’t always much of a force.

The median excess returns—defined here as the difference between a stock’s total return and that of the broader index—of stocks added to the index, measured from the announcement date to the effective date, was about 8% from 1995 to 1999. From 2000 to 2010, that number shrank to 3.6%, and was essentially nonexistent from 2011 to 2021.

And even if an index effect shows up ahead of the official inclusion or deletion date, according to a McKinsey study, the premium or discount has a tendency to dissipate within a few months. What’s new can get old pretty fast.

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