Various headwinds had already led 2022 to be a torrid year for crypto stocks like Coinbase. The collapse of rival exchange FTX has thrown the sector into further chaos. Despite this, Cathie Wood is buying the dip, maintaining that bitcoin can reach $1m by 2030.
- Despite crypto woes, Cathie Wood is buying up Coinbase shares
- “Crypto is dead,” says Mizuho analyst Dan Dolev
- Coinbase is the second-largest holding in the Bitwise Crypto Industry Innovators ETF
Coinbase Global [COIN] shares continue to snapped up by Cathie Wood’s Ark Invest, despite, or perhaps due to, the steep downturn in cryptocurrency prices.
Coinbase’s shares fell 85.5% in the year to 16 December, and 25% in the month leading up to that date. Nevertheless, Wood’s Ark Innovation ETF [ARKK] purchased 78,982 shares worth circa $3.2m in the week commencing 5 December, followed by another 297,000 on 14 December. The second of these accompanied a 75,000 purchase of Tesla [TSLA] shares.
Wood has established a reputation for buying the dip in the stocks and themes she backs, and appears to be taking advantage of the turmoil the collapse of exchange FTX has caused in crypto markets. Bitcoin [BTC-USD], which Wood believes can hit $1m by 2030, closed 16 December at $16,757.98, down 63.8% for the year.
Crypto firms hold on for dear life
Various external forces were already weighing heavily on Coinbase’s performance before the FTX bombshell exploded. Its third quarter Shareholder letter dated 3 November (just as FTX’s issues were coming to light) cited “macroeconomic factors”, a move away from US-enabled exchanges by crypto traders, and an increase in ‘hodl’ing (holding on for dear life) behaviour as headwinds against its performance. Coinbase’s revenues fell 53.4% year-over-year and EBITDA slipped from $618m in profit to losses of $116m.
In hindsight, crypto’s struggles were only just become apparent by this point. Coinbase’s shares had already fallen 77.9% in the year, and while they rose 5.4% on 4 November, the day after the Q3 earnings announcement, they have fallen a further 37.8% since.
Coinbase has scrambled to reduce costs this year, laying off 1,100 employees in June – 18% of its headcount. CFO Alesia Haas has said the company has contingency plans in place in case the crypto winter is drawn out, but these will rely on there being a market to emerge into when spring finally arrives.
FTX’s collapse weighs on crypto investing theme
The circumstances around FTX’s collapse, which led to the arrest of its founder Sam Bankman-Fried on criminal charges, is likely to result at least in tighter regulation of crypto businesses. At worst, it could see “contagion” spreading across the crypto ecosystem.
Haas told the Wall Street Journal that “we’re gonna see a drive towards regulation both in the US and globally.” There is an argument that this could benefit Coinbase. CEO Brian Armstrong recently assured customers that their assets were “backed 1:1” on the exchange, making it a safe haven compared to FTX.
Piper Sandler analyst Richard Repetto argued in a note seen by CNBC that Coinbase “may even capitalise on the FTX bankruptcy upheaval over the long term”.
Mizuho analyst Dan Dolev does not share that view. “Crypto is dead,” he told CNBC, adding that “investing in Coinbase is just a waste of time.” Dolev argued that consumer interest in crypto has collapsed, as happened to tech stocks following the dot-com bubble.
“It took people like five years to come back to [tech] stocks, and those were real businesses,” he said. Without consumer confidence, Dolev suggested, there is no value in cryptocurrencies.
Funds in focus: Bitwise Crypto Industry Innovators ETF
Coinbase is the 14th largest holding in the ARK Innovation ETF [ARKK] as of 16 December with a 3.44% weighting. The fund fell 64.8% in the year to 16 December. ARKK is a generalist disruptive innovation fund, with exposure to various themes that Wood favours, including electric vehicles via its second-largest holding Tesla and biotech via its third-largest holding Exact Sciences [EXAS].
Investors seeking greater exposure to Coinbase and cryptocurrency innovation specifically can select the Bitwise Crypto Industry Innovators ETF [BITQ]. Coinbase is BITQ’s second-largest holding as of 15 December, with a 9.96% weighting.
BITQ fell 82.5% in the year to 16 December. Its top holding, MicroStrategy [MSTR], has a 12.26% weighting. While primarily a software company, MicroStrategy became the first public firm to adopt bitcoin as its primary reserve asset in 2020. As of 19 September it held 130,000 bitcoins (acquired for approximately $4bn).
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