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Crypto Risk Now Touches $7.1 Trillion Worth of Stocks, MSCI Says

Oct. 14, 2021, 5:10 PM

Attention institutional investors: Whether you’re a bonafide and laser-eyed true believer or a skeptical holdout, the risks from cryptocurrencies could be steadily “creeping” into your portfolio, according to MSCI Inc.

At least 52 companies representing $7.1 trillion in market capitalization have some exposure to cryptocurrencies, according to an analysis by MSCI. They range from all-in players like Coinbase Inc. to Bitcoin balance-sheet “hodlers” like Tesla Inc. and MicroStrategy Inc. to those dipping a toe into crypto-market services such as JPMorgan Chase & Co.

The growing importance of the volatile digital asset class brings with it an assortment of challenges for investors and companies alike as they try to assess the environmental, social and governance risks that come along with it, the report says. These include questions about everything from greenhouse gas emissions stemming from mining coins, to a lack of accounting standards for crypto and questions about transparency surrounding how the networks are run, according to MSCI.

WATCH: The exposure of companies to cryptocurrency could be introducing risks into the portfolios of institutional investors, warns MSCI Inc.
Source: Bloomberg

“Really simple questions start to become really tricky here,” Harlan Tufford, who leads MSCI’s North American corporate-governance research, said in a podcast discussing the report. “Like, who in the company knows the passkey to access your private anonymous wallet that stores, you know, a billion dollars in Bitcoin? And how do you monitor that?”

Adding to the challenge is what appears to be a lack of crypto expertise among members of corporate boards of directors. MSCI searched the biographies of about 6,500 board members and found only 79 people at 64 companies included references to cryptocurrency or blockchain while 1,114 contained references to cybersecurity. A search for “risk management,” meanwhile, yielded 5,155 results.

Source: MSCI

In other words, corporate boards really could use some more laser eyes, given their exposure.

“People with advanced cryptocurrency-specific skills and experience are likely to be rare — at least within traditional board recruitment pipelines,” the report concluded. “This may present an opportunity to expand areas of board diversity such as director age.”

To contact the reporter on this story:
Michael P. Regan in New York at mregan12@bloomberg.net

To contact the editors responsible for this story:
stacy-marie ishmael at sishmael@bloomberg.net

Jennifer Bissell-Linsk

© 2021 Bloomberg L.P. All rights reserved. Used with permission.

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