Coinbase (NASDAQ: COIN) shares debuted on the US stock market in April 2021 and immediately fell by over $100. The subsequent crypto crash on May then kept the share price low over the summer. But now a “futures backed” Bitcoin ETF has pushed the currency to new all-time highs. Now, Coinbase has almost recovered its price too, showing how correlated Coinbase shares are with Bitcoin. However, I believe that cryptocurrencies have huge potential and that adding Coinbase shares to my portfolio will allow me to take advantage of this sector which still has room to grow.
What is Coinbase?
Coinbase is a US-based cryptocurrency exchange. Exchanges allow people to buy and sell dozens of different cryptocurrencies on an open market. This market operates at all hours of the day, around the world.
Coinbase makes the majority of its money from transfer fees. Its fees are some of the highest of any exchange, sometimes reaching up to 3%! Coinbase justifies this by offering regulatory compliance and security, two of the key worries for anyone first wishing to dabble in the crypto space.
For many this is their first and only port of call if they are looking to invest. Coinbase has such an incredible hold on the market that even rumours of a coin’s listing on the exchange is enough to send its price rocketing up. We saw this just last month with the coin SHIBA INU.
This lock on the market and large fees are what make Coinbase such an attractive investment to me. There are other exchanges, (which are not currently publicly traded), but few if any have the brand recognition and trust that Coinbase does. As cryptocurrency adoption becomes more commonplace, Coinbase is set to gain like no other.
Risks
However, there are many big risks at play here. Coinbase and its customers have been the target of persistent cyber attacks over the past few months. In spring 2021 over 6,000 people were victims of these attacks. A more successful hack could cripple the share price overnight. It is likely that Coinbase will continue to attract this kind of unwanted attention.
The correlation of the share price to the price of Bitcoin is also worrying as it doesn’t take much to send the price of cryptocurrency spiralling.
As we see further adoption of other cryptocurrencies, or ‘altcoins’, I believe this price correlation with Bitcoin will end, as capital flows out of one asset and into the numerous others available on the market.
Conclusion
When I first heard of Bitcoin in 2013, I didn’t think it would last. When I heard that it pushed past £10,000 then crashed, I thought that would be the end of it. Now in 2021, as Bitcoin pushes £45,000, I have been forced to reconsider my position. Shares in Coinbase offer me a relatively safe way to ride this wave over the coming years and that is why I will be adding it to my portfolio.
James Reynolds does not hold any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.