Investing directly in Bitcoin turned out to be a better bet than owning shares of Coinbase since its IPO.
Buying a Coinbase (COIN) stock to gain indirect exposure to the Bitcoin (BTC) market has been a poor strategy so far compared to simply holding BTC.
In particular, COIN is down almost 50% to nearly $186, if measured from the opening rate at its IPO on April 14, 2021. By comparison, Bitcoin outperformed Coinbase stock by posting fewer losses on the same period: a little over 30%, since it fell from almost $65,000 to around $41,700
What is affecting Coinbase?
However, the correlation between Coinbase and Bitcoin has been largely positive to date, suggesting that many investors view them as assets with similar value propositions. This is mainly due to the buzz about how COIN could become an easier onboarding experience for investors in the cryptocurrency sector, as compared to buying Bitcoin, Ether (ETH), and other digital assets.
Nevertheless, the COIN product is facing increasing competition with the arrival of exchange-traded products (ETPs) based on cryptocurrencies, mining stocks, and similar companies listed on Wall Street indexes. This may have reduced its demand as a reference asset to gain exposure to cryptocurrencies.
Furthermore, COIN faces downside risks due to its depressive forecasts for FY22. Coinbase stated in its latest earnings report that cryptocurrency volatility could turn 2022 into an unprofitable year, noting that its EBITDA losses adjusted could be around $500 million if their monthly transaction users are at the low end of their target range.
Jere Ong, main analyst and founder of JR Research, noted that 96% of Coinbase’s total revenue in Q4 2021 came from fees charged on retail transactions, highlighting the “inherent weakness” of its business model. We can read extracts from his report, “We believe it offers a short-term buying opportunity for speculative investors. But we don’t encourage investors to hold COIN shares long-term unless they have very high conviction of its execution.”
Bitcoin Risks are Completely Different
Bitcoin is a different beast when compared to the stock of a centralized company like Coinbase. Absolute scarcity, censorship-resistant decentralized ledger, and gold-like properties as a potential hedge against inflation in the digital age are just some of the concepts driving the price of BTC today.
Davinci Jeremie, a popular influencer, posted on Twitter that, “With 7.5% inflation and real inflation numbers at 19.5% (shadowstats) the fed is doing a great job! Just 100x more, and they will be at Paul Volcker’s level of 30% interest rates!!! Got Bitcoin?”
As a result, analysts and strategists predict that Bitcoin will go anywhere from zero to “millions” per one BTC, depending on who you ask.
On the other hand, most stocks with exposure to cryptocurrencies have also suffered more compared to Bitcoin. Namely, Nasdaq-listed mining companies Canaan, whose share value fell nearly 80% year-over-year, and Riot Blockchain, which dropped 67.55% within the same period.
By Audy Castaneda
