Buying a Coinbase stock (COIN) to gain indirect exposure to the Bitcoin (BTC) market has so far been a poor strategy compared to simply holding BTC.
Notably, COIN is down nearly 50% to nearly $186 as measured from its opening price on its IPO on April 14, 2021. In comparison, Bitcoin outperformed Coinbase stocks by registering fewer losses over the same period – just over 30 % as it fell from nearly $65,000 to about $41,700
BTC/USD (orange) vs. COIN price (blue). Source: TradingView
What’s troubling 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. That is mainly because of the buzz on how COIN could become an easier onboarding experience for crypto investors compared to buying Bitcoin, Ether (ETH) and other digital assets.
COIN’s correlation with BTC on a daily basis. Source: TradingView
But the COIN product faces increasing competition with the advent of crypto-based exchange-traded products (ETP), mining stocks and similar crypto-enabled companies listed on Wall Street indices. This may have reduced demand as the go-to asset for gaining crypto exposure.
Related: Bitcoin Heads For New ‘Milestone’ In 2022 As New Forecast Predicts BTC Price ‘In The Millions’
In addition, COIN faces downside risks due to the depressed forecast for FY22. Coinbase stated in its latest earnings report that crypto volatility could make 2022 an unprofitable year, noting that their adjusted EBITDA losses could be around $500 million if monthly transaction users hit the lower end of the target range.
Coinbase’s Adjusted EBITDA Margins. Source: JR Research
Jere Ong, the principal analyst and founder of JR Research, noted that 96% of Coinbase’s total revenue in the fourth quarter of 2021 came from fees charged for retail transactions, highlighting the “inherent weakness” of the business model. Excerpts from his report:
“We believe it provides speculative investors with a short-term buying opportunity. However, we do not encourage investors to hold COIN stocks for the long term unless you have a very high belief in its execution.
Bitcoin’s risks are very different
Bitcoin is a different beast 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 a few of the concepts driving the BTC price up today.
With 7.5% inflation and real inflation rates of 19.5% (shadow states), the Fed is doing a great job! Just 100x more, and they will be at Paul Volcker’s level of 30% interest!!! Got #Bitcoin† pic.twitter.com/qesZ2iU0Mv
— Davinci Jeremie (@Davincij15) March 17, 2022
As a result, analysts and strategists predict Bitcoin will hit anywhere from zero to “millions” per 1 BTC, depending on who you ask.
Elsewhere, most stocks with cryptocurrency exposure have also suffered more than Bitcoin. Namely, Nasdaq-listed mining companies Canaan, whose share value fell nearly 80% year-over-year, and Riot Blockchain, which fell 67.55% over the same period.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Coin-Crypto.com. Every investment and trading move involves risks, you should do your own research when making a decision.