Coinbase buys $ 500 million worth of crypto and invests future profits in a crypto wallet

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The logo of Coinbase Global Inc, America’s largest cryptocurrency exchange, is displayed on the Nasdaq MarketSite and other jumbotron in Times Square in New York, United States, April 14, 2021.

Shannon Stapleton | Reuters

Coinbase will buy $ 500 million worth of crypto on its balance sheet and allocate 10% of its quarterly profits to a portfolio of crypto assets, company executives said Thursday.

The company plans to invest in “Ethereum assets, Proof of Stake, DeFi tokens and many other crypto assets supported for trading on our platform,” becoming the first public company to do so, said CFO Alesia Haas in a blog post Wednesday night. .

CEO Brian Armstrong first revealed the brokerage’s plans in a previous tweet, saying he expects the allocation to increase as the market matures and indicating the company’s ambitions to diversify its crypto services and operations, which are primarily focused on trading.

“I hope that over time we can further leverage our crypto business,” Armstrong said on Twitter. “Today is still a mixture.”

The price of bitcoin soared on the news Thursday, topping $ 47,000 on Friday morning after sitting below $ 45,000 the previous two days. Coinbase shares are over 1% higher in pre-market exchanges.

The few companies that have chosen to include bitcoin in their holdings, like Microstrategy and Tesla (with help from Coinbase), have done so to hedge against inflation and the potential devaluation of the US dollar. Citi placed Microstrategy’s rating under review on Thursday, suspending its price target and estimates due to its investment in bitcoin and its correlation with the price of bitcoin.

The news comes a week after Palantir released quarterly results showing it had purchased $ 50 million in physical gold to hedge against the Black Swan events. Palantir also said that it accepts payments from customers in bitcoin, but none have used this option.

That same week, Coinbase released quarterly results and growth indicators that wowed analysts, who are mostly patient with the stock’s correlation with bitcoin’s price and volatility and bullish on its plans for stimulate innovation across the existing long-term financial system.

Haas said the investments would be driven by its crypto custody balances and rolled out “over a multi-year window using a dollar cost averaging strategy.” She added that Coinbase invests for the long term and “will only sell under certain circumstances, such as delisting an asset from our platform.”

Oppenheimer’s Owen Lau said he did not expect the new investment policy to significantly reduce the correlation between Coinbase and Bitcoin “in the near future.” However, he said he sees it as a signal that Coinbase can “further facilitate and influence retail and institutional adoption” over time by integrating cryptocurrencies into its own operations, such as paying vendors and retailers. employees, for example.

The news follows a Wall Street Journal report published this week that Coinbase has stored $ 4 billion in cash to deal with regulatory headwinds. Lau notes that this means that after the bitcoin transaction, the company still has a lot of money on hand.

“Share buybacks and dividends appear to be ruled out at least in the short term, but we believe management will use excess capital to reinvest in the business and make acquisitions, particularly in the international presence and subscription business.” , he added.

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