Holding BTC has proved to be a better strategy than purchasing a Coinbase stock (COIN) in an attempt to create an indirect exposure in the Bitcoin ecosystem. Bitcoin defeated the Coinbase stock by incurring fewer losses in the same duration as Coinbase. Bitcoin had a loss of slightly over 30 per cent as it plunged from about $65,000 to around $41,700. On the hand, Coinbase fell by nearly 50 per cent to almost $186 when measured from the opening rate on its IPO. Thus, investing in Bitcoin is more advisable than owning Coinbase stock since its IPO.
Challenges Faced By Coinbase
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Coinbase has been exposed to increasing competition since the arrival of crypto-based exchange-traded funds (ETFs), mining stocks and similar crypto enabled firms listed across Wall Street Indexes. The steep competition has minimised its demand as a go-to property for gaining crypto exposure.
Downside risks have negatively impacted Coinbase due to its poor forecasts for 2022. In its latest earnings report, Coinbase stated that the crypto volatility could turn 2022 into an unprofitable year. Notably, the Coinbase adjusted EBITDA losses are estimated to be around $500 million if its monthly transaction users reach the lower end of its guidance range.
Many investors and the crypto community consider Bitcoin and Coinbase assets bearing the same value proposition. The two cryptos’ correlation has been majorly positive up to date. This can be solely due to the hype of how Coinbase can become a more straightforward onboarding experience for investors into the crypto ecosystem compared to purchasing Ether (ETH), Bitcoin and other virtual assets.
How Coinbase Works
Coinbase is a direct online exchange; it allows retail traders to meet in the middle and find a price. For established crypto users, Coinbase provides a massive trading platform known as Coinbase Pro, which is characterised by a complete set of features and charts to help the users to climb the depths of the crypto market. Coinbase also offers a free wallet service that allows crypto enthusiasts to store their cryptocurrencies safely.
Coinbase has successfully succeeded in its operations, and it has also kept its user personal details secure. However, in 2014, Coinbase faced one of its significant failures when the Japanese exchange Mt. Gox was hacked, which led to the company’s bankruptcy and loss of billions of dollars worth of Bitcoin.
Challenges faced by Bitcoin
Bitcoin is a different coin compared to the shares by a centralised company like Coinbase. Some of the concepts behind the rising BTC today are censorship resilient decentralised ledger, absolute BTC scarcity and gold like assets as a potential hedge against inflation in this digital era. Bitcoin risks are different from those risks related to Coinbase.
According to Crypto Lists, Bitcoin made way for the other cryptocurrencies. However, since the crypto market has become saturated with different cryptos, Bitcoin has started to experience stiff competition. Since Bitcoin is the default crypto, it keeps paving ways to stay on the top and in demand in the crypto community. The emergent digital currencies provide proof of stale (with greater yields), faster transfers and considerable transaction fees.
The current price of Bitcoin is 43,995.60 USD and has a 24-hour trading volume of 29,899,127,077 USD. It has a live market cap of USD 835,593,027,402, a circulation supply of 18,992,650 BTC coins, and a maximum supply of 21,000,000 BTC coins. Within the past 24 hours, Bitcoin has risen by 3.07% and its CoinMarketCap remains at number 1.
Impact of Interest Rate Hikes on Bitcoin and Coinbase Market
The value of the dominant cryptocurrency, BTC, increased by 50% during the interest rate hikes. Bitcoin enjoyed an all-time high value during this moment of $70,000. Afterwards, its value decreased by $35000. Since the beginning of 2022, the value of Ethereum reduced by around 35%.
According to cryptolists, all cryptocurrencies’ market value is currently $1.6 trillion. However, since November 2021, the market cap has decreased by 50%.
How Does Coinbase Make Money?
Coinbase does not charge its users for storing digital assets in its famous wallet service. However, it earns commissions and fees when crypto enthusiasts sell and buy crypto, such as Ethereum and Bitcoin on its platform. Some of the fees and commissions include:
The margin fee, also known as the spread, is around 0.50% for crypto purchases and sales. The rate depends on various market conditions. Also, the margin fee you end up paying is based on the alteration in price between the time you get a price quote and when the order is entirely completed.
The Coinbase fee is a commission on all crypto transactions charged in addition to the spread. The fee paid depends on your location and the total amount you will transact.
In addition to its transaction services, Coinbase provides other services such as Coinbase Commerce, Coinbase card and USD coin. All these services bring in money for the Coinbase platform.