It is no secret that mainstream institutions are only now realizing the potential of cryptocurrencies. They are looking for a way to invest in them while also managing risk. Based on Coinbase’s quarterly filings, major institutions including Goldman Sachs and JPMorgan hold Coinbase stocks. This begs the question – “Why are institutions buying into Coinbase stocks?”
The answer is simple. To manage risk and churn benefits out of crypto-volatility.
A new investment strategy
Institutions aren’t interested in Coinbase stocks alone. They are after crypto-stocks. BlackRock, one of the world’s large asset managers, recently acquired Coinbase stocks, following its $700 million worth purchase of MicroStrategy stock. This strategy exposes institutions to the exchange’s crypto-holdings, which are anyway expanding by the month.
And, Coinbase’s crypto-holdings are going to shoot up even more. Brian Armstrong, CEO of Coinbase, recently announced the purchase of over $500 million worth of crypto. This more than doubled its crypto-holdings. In fact, as per data provided by IntoTheBlock,
“The $500 million investment means Coinbase will more than double its crypto holdings. This is the case as it currently holds 4,487 Bitcoin ($255 million), which makes up 63% of its total crypto holdings.”
What’s more, this announcement was followed by hikes of over 3% in Bitcoin and Ethereum’s markets. Ergo, things will get more interesting when Coinbase begins to invest 10% of its profits in crypto, as marked in its Q2 earnings report.
According to the same, the exchange’s profits over the last quarter were a whopping $160 million. This marked a growth rate of 50x year on year, as per data from IntoTheBlock. It further reflected on the entity’s growing crypto-allocation.
The go-to investment?
As Coinbase increases its crypto-holdings, institutions that have invested in its stocks will be indirectly exposed to these assets. In fact, Coinbase has emerged to be the ‘go-to investment’ for crypto-exposure. While the exchange’s performance will now be more reliant on how cryptocurrencies are doing, the performances of Bitcoin and Ethereum are bound to attract more investors towards this ‘go-to investment.’
By extension, the financial interests of institutions who are interested in Coinbase are also linked to how crypto does now.