With the rise of cryptocurrencies, we examine alternative ways to gain exposure to the space and ask which is the better investment?
Oct. 29, 2021
The emergence of cryptocurrencies has been nothing short of meteoric in the last few years. Bitcoin has been leading the way and recently made new all-time highs but is ProShares Bitcoin Strategy ETF (NYSEARCA: BITO) or Coinbase (NASDAQ: COIN) a better investment to benefit from this crypto craze?
ProShares Bitcoin Strategy ETF Bull vs Bear arguments:
ProShares Bitcoin Strategy ETF, BITO hereafter, is the first U.S. Bitcoin ETF launched on October 19th, 2021, and seeks to provide exposure to the cryptocurrency through Bitcoin futures contracts.
The BITO ETF was the fastest ETF ever to gain over $1 billion in assets, and the launch of the BITO ETF legitimizes the use of Bitcoin to some extent. Investors may finally be gaining an understanding of this new asset class and the possibility that it is more than just a passing trend. As a first-mover in the market, this could also lead to further price appreciation as inflows increase with greater institutional engagement.
The BITO ETF provides investors with a cheaper alternative than investing directly. In addition, it is arguably a safer alternative for gaining exposure as it does not involve using a wallet which is required for Bitcoin.
Investors should be aware that the BITO ETF does not hold Bitcoin directly. The fund aims to "generally correspond to the performance of Bitcoin", which presents another evident risk in that Bitcoin can be highly volatile and is not for the faint-hearted. Another downside of investing in this ETF is that it carries an annual expense ratio of 0.95%. As other funds emerge, perhaps with lower fees, the money in the BITO ETF may flow elsewhere.
Coinbase Bull vs Bear arguments:
Coinbase (NASDAQ: COIN) is the largest cryptocurrency exchange founded in 2012 and operates in 100 countries worldwide.
Coinbase is a pick and shovel play and allows investors to gain exposure to the broader cryptocurrency market. It has the first-mover advantage in the space now, with over 68 million registered users. Coinbase also has brand recognition and is trusted, which is essential as this will help it attract users as cryptocurrencies continue to gain adoption.
In its latest quarter, Q2 2021, Coinbase reported revenue of $2.03 billion, an increase of roughly 1,040% year-over-year (YoY), and posted a profit of $1.6 billion. It also adds new coins to its platform, with the total now standing at 110, which helps to drive user engagement.
Another exciting area beyond retail is that institutions are turning to Coinbase to buy, sell and store cryptocurrencies. Coinbase has also partnered with well-known names such as Elon Musk, Tesla, and more.
Despite its growth, Coinbase's revenue is extremely hard to forecast as it is tied to transaction fees and Bitcoin and Ethereum make up over half of this. Its trading volume is also highly correlated with the volatility of Bitcoin, which could be a concern.
So, which is a better investment today?
Although both come with risks, Coinbase appears to be a better buy as it is more established and should benefit from the overall rise of cryptocurrencies in the coming years.
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