Coinbase Is a Great Way to Bet on Crypto
On Monday, the headline announcement was that Tesla, Inc. (Nasdaq: TSLA) might start accepting Bitcoin (BTC) as payment again.
The volatile and young crypto market — which is always in search of validation — reacted strongly to this big news.
And we’ve seen that a lot recently as the financial press is transfixed with Musk.
The mercurial Tesla chief executive made news in February when the electric vehicle (EV) maker filed notice with the Securities and Exchange Commission (SEC) that managers had acquired $1.5 billion worth of Bitcoin and would begin accepting the cryptocurrency as payment.
In May, Musk said that program had been suspended. Now, it is on again … maybe.
Musk’s crypto strategy is newsworthy and certainly impacts crypto prices in the short term, but it is not the longer-term driver of prices by any stretch.
The real factors impacting prices are much more complex.
To be fair, calling Bitcoin a currency has always been a bit of a stretch. In the early days, its low price, decentralized architecture and anonymity attracted people with something to hide.
Related Post: Coinbase Looks to Shine
It became the currency of choice among drug traffickers and money launders on the dark web. These days, the price has grown exponentially, and the demographic is larger, filled with a much larger user base ranging from mistrustful millennials to uber-successful hedge fund managers.
The attraction is a purely digital exchange of value independent of government printing presses.
As enticing as that sounds, it’s important to understand the basics of its rich history.
Bitcoin was born in the aftermath of the 2008 financial crisis. An anonymous white paper penned by the pseudonym Satoshi Nakamoto laid out the foundation for a digital currency to circumvent central banks.
The foundation was the blockchain, an ingenious digital ledger based on next-level cryptography and decentralization. The coins could not be duplicated, nor could the system be hacked. Better still, after 21 million coins were created, there would be no more.
Bitcoin is scarce by design.
Scarcity and independence from central bankers are the real drivers of price.
Bitcoin was only 8 cents in 2010. After reaching a record high of $63,000 in April, a single coin is worth around $40,000 as of writing.
Last year, Paul Tudor Jones and Stanley Druckenmiller, two titans of the hedge fund world, began allocating funds to cryptocurrency.
A portfolio manager at Soros Fund Management told Bloomberg in March that intuitional investors see Bitcoin as a hedge against shrinking fiat currencies.
And analysts at The Bank of New York Mellon Corp. (NYSE: BK), a major trustee for investment managers, wrote a report a week later that predicted Bitcoin could reach $100,000 by July.
Barring a sudden surge during the next month, the $100,000 prediction seems out of bounds, yet interest among the professional class remains high.
Analysts at Chainalysis, a research firm that specializes in cryptos, found pros bought 34,000 Bitcoin into the May decline, according to a Bloomberg report.
A great way for the average investor to get involved with the cryptocurrency market is with Coinbase Global, Inc. (Nasdaq: COIN), the world’s largest cryptocurrency exchange.
The company operates the premiere exchange for Bitcoin and other crypto assets, for which it collects a fee.
Since 2012, the platform has been an online haven where enthusiasts could safely buy, sell and hold their digital coins. To date, the San Francisco-based company has not been breached, nor have any coins been stolen.
Related Post: Why Coinbase Is a Great Play on NFTs
In its initial SEC filing, Coinbase managers claimed 56 million individual accounts, 7,000 institutions and 115,000 partners scattered across 100 countries.
The company had $1.14 billion in sales during 2020, up 139% year over year. Profits came in at $322 million versus a loss of $30 million. Gross income surged to $527 million, up 2,000%.
This is a really big business that is certain to get bigger as the value of Bitcoin rises over time.
Shares have been beaten up since its April initial public offering (IPO). After reaching a high around $430, the stock was nearly cut in half a month later. Shares are currently trading around $232.25.
Long-term investors should strongly consider buying shares into the current weakness.
Jon D. Markman