Analyze the underperformance of three asset classes linked to Bitcoin and select the best one

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However, after being adopted by some big names mainly to increase their balance sheets as well as offered under new funds like the ProShares Bitcoin Strategy ETF (BITO) in October 2021, the cryptocurrency still managed a one-year gain of 3.64%. However, the volatility associated with Bitcoin could result in either a continued decline in the event that US regulators plan tough measures, or a dramatic increase in the event of adoption by a large institution.

Regarding the orange chart below, BITO, which offers investors exposure to Bitcoin through its futures contracts (future price increases), instead of owning digital coins themselves, suffered 37% at the time. over the past three months. This means more underperformance than the digital asset itself. According to funds prospectusThis is explained by the “carry-over effect” and occurs when the fund sells the maturing contract at a relatively lower price and buys longer-term contracts at a relatively higher price. Conversely, the fund may also benefit from the “offset effect” when it sells an expiring contract at a higher price than it pays for a new, longer-term contract.

Yet, according to ETF Trends, despite the latest volatility, entries into BITO remained stable in January, meaning those with a long-term investment goal choose the ETF instead of having to own crypto wallets. .

Source: ycharts.com

Then Marathon Digital Mining (NASDAQ: MARA) as a Bitcoin miner (or producing coins using computer equipment), as shown in the pale blue graph above, suffered from a level of volatility even higher, having increased by 60% in the first week of November, but currently down 40%. Looking through the industry, other miners like Riot Blockchain (NASDAQ: RIOT) have also been affected. One of the reasons miners pain is that in addition to minting digital coins, they hod (store Bitcoins) instead of selling them. Therefore, unless you have a more commercial profile, avoid minors.

On the other hand, Coinbase Global (NASDAQ: COIN), with its cryptocurrency exchange app designed to trade cryptocurrencies, was less impacted, by -17.23% as shown in the green chart below. above, in part due to a reduction in the platform’s exposure to Bitcoin, from 57% in 2020 to 42% in 2021. By exploring further, the company is diversifying its revenue beyond retail of crypto.

In this regard, non-commercial revenues made up of Subscriptions & Services, which rose from 4% in Q3-2020 to 12% in Q3-2021, seem to be on an upward trend. Additionally, by offering services such as blockchain rewards and a Earn campaign, as well as planning an NFT (Non-Fungible Token) platform to leverage Decentralized Finance (DeFi) products, Coinbase is one of the best Bitcoin-related investments you can think of. currently.

To further justify my bullish stance, the crypto exchange has $ 6.3 million on its balance sheet, and more importantly, it generates operating income, not a loss like most miners do.

Source: documents filed with the SEC

Finally, with the current inflation outlook and the reduction in the Fed’s monetary stimulus, Bitcoin, like many high value-added tech stocks, is no longer benefiting from an increase in the money supply. Thus, it is better to avoid exposure to currency devaluation by investing in asset classes that are directly exposed to the value of Bitcoin such as BITO and crypto-miners. Instead, an exchange like Coinbase that benefits from trading-based income and diversifies into value-added services around the crypto ecosystem makes more sense. So the company could jump to $ 250 upon launch of Coinbase NFT, a new product experience where users can create, collect, discover, and present their NFTs, all in one place.


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