For diehard cryptocurrency investors, the answer to their prayers has typically been bitcoin, the world’s number one digital currency by market cap. However, while the currency has been spiking like no other asset, it remains as volatile as ever. Many traders still see bitcoin as risky, and for this reason, stock shares in Coinbase – set to debut on the Nasdaq next week – might be the alternative tool they seek.
The Coinbase Stock Is Heading Our Way
Coinbase initially announced in late 2020 that it was planning to go public. Now, as April 14 approaches, many crypto traders believe that the exchange’s newly listed stock is going to move the cryptocurrency world deeper into mainstream territory, while others say this will be a good opportunity to alleviate some of the volatility associated with digital assets.
Greg Foss, a veteran credit trader and BTC investor, recently wrote in a blog post:
For a crypto investor that also buys stocks, it has the ability to diversity risks as there is a very profitable exchange platform that trades on another venue (stock exchange) whose flows of buyers and sellers can be less correlated than many crypto prices.
However, Foss is also warning that Coinbase is tied directly to bitcoin and many mainstream forms of crypto. In addition, volume and price tend to work in tandem, and thus Coinbase’s growing revenue could wind up remaining susceptible to crypto price swings, which may prevent traders from experiencing full steadiness in their investments. He states:
In a traditional stock portfolio, it gives exposure to an exchange platform that generates trading fees on crypto. Those fees increase with volumes, and volumes typically increase with prices, so there is a beta trade there.
Still, if crypto traders are looking strictly for diversification options, the new Coinbase stock could be what they are after. Gil Luria – head of institutional research at D.A. Davidson & Co. – explained:
Coinbase will win regardless of which crypto asset emerges as a winner, and their revenue is tied more to trading volumes, which are often less volatile than asset values.
It May Be Good to Wait a Bit
At the same time, perhaps waiting a bit for Coinbase to settle and find its footing in the stock world may not be a bad idea according to some industry heads. Kevin Kelly – global head of macro strategy at Delphi Digital – mentions:
I expect to see a lot of volatility next week once COIN begins trading, but eventually I think we will see it trade more in line with the direction of the broader crypto market. However, I view it as a lower beta play on the continued expansion of crypto with less downside risk to crypto asset prices. In other words, COIN is more agnostic to crypto asset prices and may be an attractive opportunity for investors looking to gain exposure to the continued adoption of crypto.