[ad_1]
Love it or hate it, when Cathie Wood (CEO of ARK Invest) speaks, the investment community listens. Ark operates six actively traded exchange-traded funds (ETFs), and each one is focused on long-term growth and paradigm-shifting technology.
Besides electric vehicles, one of Wood’s more outspoken ideas is Bitcoin (CRYPTO: BTC). And so it’s no surprise that the different funds of the investment management company hold shares in one of the world’s largest cryptocurrency exchanges, Coinbase Global (NASDAQ: COIN). What is surprising, however, is the large number of shares that these funds have acquired in the two months since the company’s direct listing. Let’s take a look at the build-up of Coinbase ARK shares – as well as the strengths and weaknesses of the company – to determine if Coinbase is a stock worth buying right now.
Image source: Getty Images.
ARK’s Coinbase stock buildup
As of June 16, ARK funds cumulatively held 4.63 million shares of Coinbase, valued at nearly $ 1.04 billion at the time of writing. , options and restricted shares. This makes Ark one of the largest institutional owners of Coinbase.
After a large purchase during Coinbase’s first week of direct listing, ARK Innovation ETF (NYSEMKT: ARKK), ARK Next Generation Internet ETF (NYSEMKT: ARKW) and ARKFintech Innovation ETF (NYSEMKT: ARKF) have gradually added shares. The following chart shows the combined daily buys and sells of these three ETFs.
Data source: ARK Invest, ARK ETF Track. Chart by author.
As you can see in the chart, ARK acquired most of its position in April and May. This is a good sign for investors who view the stock at its current price, which is much cheaper than what Ark paid for. Coinbase is now one of the largest holdings in the ARK line of funds. In particular, it is now one of the top 10 holdings of ARK’s flagship innovation fund.
Metric
ARK Innovation (ARKK)
ARK Nextgen Internet (ARKW)
ARK Fintech (ARKF)
Shares held
3,309,612
844,630
463,517
Position rank
9/51
10/48
12/44
% of fund
3.5%
3.5%
2.9%
Data source: Ark Invest.
A flourishing business
Coinbase is the # 1 cryptocurrency depository and exchange available in the United States. The first quarter of last year (Q1) saw 34 million verified users and generated $ 1.28 billion in revenue and $ 322 million in net income for all of 2020 compared to its blowout of the first quarter of this year. Coinbase ended the quarter with 56 million verified users, generated $ 1.8 billion in revenue and generated $ 771 million in net profit for a profit margin of 43% compared to 25% for the year 2020. Coinbase has clearly benefited from a sharp rise in cryptocurrency exchanges and valuations, as the cumulative market cap of all tokens grew from less than $ 800 billion at the end of 2020 to over $ 2,000 billion at the end of the first quarter of 2021.
Coinbase charges a minimum trading fee of 1.49% per transaction. While it is true that he makes money both by buying and selling securities, he will generally make more money when cryptocurrency prices rise. Higher valuations mean more assets under management, trading volumes, and potentially more users entering its platform to try and participate in the action.
Besides cryptocurrency prices, Coinbase is also benefiting from increased institutional adoption of Bitcoin. Cathie Wood’s optimism about Bitcoin centers on the idea that the more regular businesses (not just banks and fintech platforms) that hold Bitcoin on their balance sheets, the more its value and reputation can grow. It may surprise you to learn that Coinbase institutional trading volumes were around 80% higher than retail trading volumes in the first quarter. Much of it came from Bitcoin and Ethereum (CRYPTO: ETH), which account for over 75% of the assets held on the Coinbase. Platform. In other words, the cryptocurrency market is now sophisticated and dominated by big players, far from its marginal roots.
In summary, Coinbase is one of those rare companies that combines profitability with serious growth potential. Management is optimistic about further growth in the second quarter, while acknowledging the cyclicality of the cryptocurrency market and the positive and negative effects this momentum will have on Coinbase’s performance.
Increased competition
This brings us to the weaknesses of Coinbase, the first being the volatility of the cryptocurrency. Cryptocurrency may be more common than it used to be, but it’s still just as volatile. The worst of the May cryptocurrency crash sent Bitcoin and Ethereum down by more than 50% in just a few days. Volatility has made Bitcoin inefficient as a currency. Prolonged declines in asset values and investor sentiment could lead to difficult comparisons or even negative growth for Coinbase in the short to medium term.
It’s probably best to avoid Coinbase if you don’t believe in the future of cryptocurrency. But even after that baseline is reached, there is still the threat of increased competition. Many of Coinbase’s competitors offer higher interest rates and lower (or free) trading fees than Coinbase. As cryptocurrency adoption grows, Coinbase is likely to face even fiercer competition, which could put pressure on profit margins and stagnate or reduce the number of Coinbase users. However, Coinbase has never been hacked and has invested heavily in security and its user-friendly interface, and it has a reputation for high liquidity (which institutional investors love).
The bottom line
Cathie Wood and her team gobbled up Coinbase stocks because they believe in the future of Bitcoin as an asset class and store of value. Given Coinbase’s performance in the first quarter and second quarter projections, the company’s numbers for 2021 are expected to be excellent, which will make its valuation ratios stellar. The big question is whether or not he can keep up his impressive pace.
For investors new to the space, it’s probably best to spend some time learning about the different types of cryptocurrency before diving head first into cryptocurrency-related investments. But for investors who already own Bitcoin or Ethereum, or are just looking to take a position in stocks rather than tokens, Coinbase seems like one of the best cryptocurrency stocks around.
This article represents the opinion of the writer, who may disagree with the official recommendation position of a premium Motley Fool consulting service. Were motley! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
[ad_2]
picture credit