What do institutions have to gain by getting in on Coinbase’s stock
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.