For many investors, Coinbase Global Inc.’s trading debut next week will be a $ 2 trillion cryptocurrency market entry.
And for those who have already shown themselves to be Bitcoin, the arrival of the largest cryptocurrency exchange in the US on the Nasdaq stock market could be what is needed to settle the portfolios stolen by the notorious volatility of the asset class.
There are other stocks already related to the bits and bytes of different blockchains. By Elon Musk Tesla Inc. and Michael Saylor’s MicroStrategy Inc. significantly added billions of euros worth of Bitcoin to their treasuries. But, through the public listing of Coinbase, investors will have the opportunity to choose an action related to cryptocurrencies, ie – so the hope goes – less likely to suffer persistent boom and bust cycles.
“For a crypto investor who also buys shares, he has the ability to diversify risks, because there is a very profitable trading platform that trades on another place (stock exchange) whose flows of buyers and sellers can be less correlated than many prices cryptographic, ”wrote Greg Foss, a veteran credit trader, Bitcoin investor and chief financial officer for Validus Power Corp., in response to questions via email.
Coinbase intends to go public through a direct list in which it will not raise any new capital, it said in an S-1 registration. Direct listing allows current shareholders to trade their shares without a lock-in period that is typical of an initial public offering. It was rated at approx $ 90 billion in its last week of trading on the Nasdaq private market, Bloomberg News reported.
However, as volume and price tend to go hand in hand, the transaction revenues of Coinbase, its largest segment, could remain susceptible to fluctuations in the cryptocurrency market.
“In a traditional stock portfolio, it offers exposure to an exchange platform that generates crypto trading fees,” Foss wrote. “These taxes increase with volumes and volumes usually increase with prices, so there is a beta transaction there.”
Coinbase said on Tuesday that it expects to report a first quarter profit from $ 730 million to $ 800 million, more than double what it earned in all of 2020. The fast quarter for the stock market comes amid rising cryptocurrency prices. The Bloomberg Galaxy Crypto index, tracking Bitcoin, Ether and six other cryptocurrencies, has advanced by more than 100% in each of the last two quarters.
Coinbase market capitalization projections against listed exchanges
Coinbase could have an additional recourse for investors. The exchange could provide a diversified investment accessible in space, where there is a proliferation of cryptocurrency chips and few passive vehicles to spread bets, according to Gil Luria, head of institutional research at DA Davidson & Co.
“Coinbase will earn regardless of the cryptocurrency asset that appears as the winner, and their revenues are more related to trading volumes, which are often less volatile than asset values,” Luria wrote in an email.
But investors who want to add some stability to their cryptocurrency portfolios may want to exercise patience.
Kevin Kelly, global head of macro strategy at research firm Delphi Digital, warns that those who want a lower volatility investment may want to be part of Coinbase’s first week of trading.
“I expect to see a lot of volatility next week once COIN starts trading, but in the end I think we will see it trading more in line with the direction of the wider crypto market,” Kelly wrote in an email. “However, I see it as a smaller beta game on the continued expansion of cryptography, with a lower risk in terms of crypto asset prices; in other words, COIN is more agnostic about the prices of cryptocurrencies and can be an attractive opportunity for investors who want to gain exposure to the continued adoption of cryptocurrencies without taking on similar levels of price volatility. ”