Buying a Coinbase stock (COIN) to gain indirect exposure in the Bitcoin (BTC) market has been a bad strategy so far compared to simply holding BTC.
Notably, COIN is down by nearly 50% to almost $186, if measured from the opening rate on its initial public offering (IPO) on April 14, 2021. In comparison, Bitcoin outperformed the Coinbase stock by logging fewer losses in the same period — a little over 30% as it dropped from nearly $65,000 to around $41,700
BTC/USD (orange) vs. COIN price (blue). Source: TradingView
What‘s bothering Coinbase?
The correlation between Coinbase and Bitcoin has been largely positive to date, however, suggesting that many investors consider them as assets with similar value propositions. That is primarily due to the buzz around how COIN could become a simpler onboarding experience for investors into the crypto sector compared to buying Bitcoin, Ether (ETH) and other digital assets.
COIN’s correlation with BTC on daily basis. Source: TradingView
But, the COIN product is facing increasing competition with the arrival of crypto-based exchange-traded funds (ETFs), 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.
Related: Bitcoin faces new ‘milestone’ in 2022 as new forecast predicts BTC price ‘in the millions’
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.
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 Q4 of 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…..