Buying Coinbase (COIN) shares to gain indirect access to the bitcoin (BTC) market has been a poor strategy so far compared to owning only BTC.

Specifically, COIN fell nearly 50% to around $186, according to the April 14, 2021 IPO opening price. By comparison, Bitcoin stock outperformed Coinbase, posting smaller losses over the same period — just over 30% when it fell. Approximately $65,000 to $41,700.

BTC/USD (orange) versus the price of the currency (blue). Source: Trading View
What’s Worrying About Coinbase?
So far, the correlation between Coinbase and Bitcoin has been mostly positive, indicating that many investors see them as an asset with a similar value proposition. This is primarily due to the hype that COIN could be an easier setup for investors in the crypto sector compared to buying bitcoin, ether (ETH), and other digital assets.

COIN relationship with BTC on a daily basis. Source: Trading View
But the COIN product is facing increasing competition with the emergence of exchange-traded products (ETPs) based on cryptocurrencies, mining stocks and similar companies that are activated with cryptocurrencies listed on Wall Street indices. This could lead to a decrease in demand as the most important resource for achieving access to cryptocurrencies.

Related: Bitcoin to Face New ‘Milestone’ in 2022 as New Forecast Predicts Bitcoin Price ‘in Millions’

In addition, the counterinsurgency is facing downside risks due to the dismal outlook for FY22. In its latest earnings report, Coinbase said that the cryptocurrency could make 2022 unprofitable, noting that its adjusted EBITDA loss could be around $500 million if users’ monthly transaction reaches the minimum routing range.

Coinbases has adjusted its EBITDA margin. Source: JR Research.
Jerry Ong, principal analyst and founder of JR Research, notes that 96% of Coinbase’s total revenue in the fourth quarter of 2021 came from fees charged on retail transactions, highlighting the “inherent weakness” of the business model. Excerpts from his report:

“We believe this provides a short-term buying opportunity for speculative investors. However, we do not recommend that investors hold COIN long term unless you are very confident in their performance.
Bitcoin Risks Are Completely Different
Bitcoin is another beast compared to stocks of central companies like Coinbase.

Absolute scarcity, a censored decentralized ledger, and gold-like properties as a potential hedge against inflation in the digital age are just some of the concepts driving the price of Bitcoin today.

As a result, analysts and strategists expect bitcoin to go from zero to “millions” for 1 bitcoin, depending on who you ask.

Elsewhere, most cryptocurrencies have also suffered more than Bitcoin. Namely, Nasdaq-listed Canaan miners, whose share price is down nearly 80% year on year, and Riot Blockchain, which is down 67.55% in the same period.

Source: CoinTelegraph