Crypto Joins the S&P 500. Here's What the Critics Are Saying

More good news continues to roll in for the crypto industry. Market bellwether Bitcoin (CRYPTO: BTC) is back above $100,000 and just set a new high of more than $111,000 as of this writing. And, on May 19, cryptocurrency exchange Coinbase Global (NASDAQ: COIN) formally joined the S&P 500.

While crypto enthusiasts view the inclusion of Coinbase in the S&P 500 as cause for celebration, the critics and naysayers are already out in force. Here's what they are saying.

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The glass-half-empty view of Coinbase

Coinbase joining the S&P 500 represents a changing of the guard. As the first-ever native crypto company in the S&P 500, Coinbase will replace credit-card company Discover Financial Services, which is being acquired by Capital One Financial (NYSE: COF). So, the S&P 500 is essentially swapping out a "traditional finance" stock with a "blockchain finance" stock.

So what's wrong with that? The problem, quite simply, is that any mutual fund or exchange-traded fund (ETF) that tracks the S&P 500 will now be forced to buy Coinbase. That means millions of Americans, whether they realize it or not, will also be buying Coinbase. As a result, they will (indirectly) be adding a tiny amount of crypto risk to their portfolios.

Image source: Getty Images.

If you think that crypto is a volatile and toxic asset, that's not good news. In fact, some industry watchdogs are now warning that the mainstream adoption of crypto is "a disaster courting a catastrophe." As they see it, any implosion of the crypto sector -- of which there have been more than a few -- will ultimately reverberate in the portfolios of everyday Americans.

In a worst-case scenario, it might lead to something along the lines of what we saw in 2022, when the value of all crypto assets fell significantly, and Coinbase took a beating. Or, even worse, something along the lines of the global financial crisis of 2008.

The glass-half-full view of Coinbase

But any mention of the global financial crisis of 2008 is where things get interesting. That's because it was arguably the event that gave rise to the creation of Bitcoin. In the very first block ever mined for the Bitcoin blockchain, there is a direct reference to the shenanigans of bankers and government officials.

The so-called Bitcoin "genesis block" quotes a U.K. newspaper headline from Jan. 3, 2009: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks." While nobody knows for sure what Satoshi Nakamoto (the pseudonymous founder of Bitcoin) had in mind with this cryptic message, it is generally interpreted as a warning against the perils of the traditional financial system.

So, if anything, investors should be excited about Coinbase joining the S&P 500. They should be excited about Bitcoin surpassing $100,000. And they should be over-the-moon excited about the U.S. finally adopting pro-crypto policies and building a Strategic Bitcoin Reserve. From this perspective, blockchain finance is going to save the world of traditional finance, not wreck it.

That's why Coinbase is potentially such an exciting investment play these days. It is at the forefront of crypto and blockchain innovation. In 2023, for example, it became the first publicly traded company with its own blockchain network. And it continues to develop innovative new digital assets for investors. At the same time, Coinbase is helping to build a stronger crypto industry through its support of better crypto regulation.

Crypto stocks and tech innovation

I'm taking a positive view of the Coinbase news. Tech innovation is where value is being created these days. Coinbase -- as the first-ever pure play crypto stock added to the S&P 500 -- is arguably the single biggest innovator within the crypto industry right now.

The same people who are worried about crypto joining the S&P 500 are probably also the same people who are worried about new artificial intelligence (AI) companies joining the S&P 500. With AI, too, there is potential risk. Just talk to any industry leader in AI -- they will admit there's theoretical existential risk of super-smart AI wiping out humanity. That's scarier than anything that could happen with crypto.

There is a crypto revolution happening in America these days. Crypto is going mainstream, and a growing number of crypto companies are benefiting from this trend. If you're not quite ready to add crypto to your portfolio directly, it might be worth taking a look at stocks such as Coinbase, which provide exposure to the broader crypto market in a safer, more regulated way.

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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Coinbase Global. The Motley Fool has a disclosure policy.