Purchasing Coinbase stock (COIN) to acquire indirect exposure to the Bitcoin (BTC) market has shown to be a poor strategy in comparison to merely owning BTC.
When compared to the opening rate on its IPO on April 14, 2021, COIN has dropped approximately 50% to almost $186. Bitcoin, on the other hand, outperformed the Coinbase stock by losing a little more than 30% in the same time frame, falling from about $65,000 to around $41,700.
What’s the matter with Coinbase?
To yet, however, the connection between Coinbase and Bitcoin has been generally positive, indicating that many investors view the two assets as having similar value propositions. That’s because there’s a lot of talk about how COIN could make it easier for investors to get into the crypto space than buying Bitcoin, Ether (ETH), and other digital assets.
But the COIN product is facing increasing competition with the arrival of crypto-based exchange-traded products (ETP), mining stocks, and similar crypto-enabled firms listed across Wall Street indexes. This may have reduced its demand as the go-to asset for gaining crypto exposure.
Additionally, COIN faces downside risks due to its depressive forecasts for FY22. Coinbase stated in its latest earnings report that the crypto volatility could turn 2022 into an unprofitable year, noting their adjusted EBITDA losses could come to be around $500 million if its monthly transaction users come at the lower end of its guidance range.
The principal analyst and founder of JR Research, noted that 96% of Coinbase’s total revenue in Q4/2021 came from the fees charged on retail transactions, which highlights its business model’s “inherent weakness.” Excerpts from his report:
“We believe it offers a short-term buying opportunity for speculative investors. But, we do not encourage investors to hold COIN stock for the long term unless you have a very high conviction of its execution.
The hazards associated with Bitcoin are altogether different
When opposed to the stock of a centralized corporation like Coinbase, Bitcoin is a whole different animal.
Absolute scarcity, a censorship-resistant decentralized ledger, and gold-like qualities as a potential inflation hedge in the digital age are just a few of the thoughts that are driving up the price of BTC today.
As a result, depending on who you ask, analysts and strategists estimate Bitcoin will reach anywhere from zero to “millions” per 1 BTC.
In addition, most crypto-exposure stocks have incurred bigger losses than Bitcoin. Canaan, a Nasdaq-listed mining company, saw its stock value plummet by nearly 80% year over year, while Riot Blockchain, a Nasdaq-listed mining company, saw its stock value plummet by 67.55 percent in the same time period.
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