Coinbase and CleanSpark rise on Bitcoin wave

The cryptocurrency industry is going through a difficult time. Cryptocurrency trading platform Coinbase Global Inc. NASDAQ: MONEY it grew 29% in February, following a profitable quarter that comfortably beat estimates.

You can see these results on MarketBeat’s Coinbase global earnings page.

Other cryptocurrency stocks, such as Bitcoin miner CleanSpark Inc. NASDAQ: CLSK have recorded monstrous demonstrations in recent sessions.

CleanSpark is representative of the volatile cryptocurrency space, with a beta of 3.01, meaning it is approximately three times more volatile than the overall market. It tends to amplify market movements, both upward and downward.

This has been quite common among cryptocurrency stocks as a whole. Even large-cap Coinbase has a beta of 2.52, indicating extraordinarily high volatility, compared to the broader market.

But wait, there’s more.

Billions flow into Bitcoin ETFs

Since the launch of Bitcoin spot exchange-traded funds in January, the market has seen more than $3 billion flow into these products.

Make no mistake: This isn’t mom and dad betting their retirement on Bitcoin; It’s money from institutional investors and financial advisors springing into action now that there is more regulatory protection for their clients.

The iShares Bitcoin Trust NASDAQ: GO has skyrocketed to over $5.6 billion in assets in just over a month since launch. That’s a faster rate of asset collection than gold ETFs did when they launched two decades ago.

The IBIT ETF has returned over 18% since its launch.

The Bitcoin Trust in grayscale NYSEARCA: GBTCwhich began the entire regulatory approval process, saw outflows of $6.5 billion, partly due to a high expense ratio compared to other spot bitcoin ETFs.

Institutional investors look very carefully at fees so that they keep up with industry developments.

Bitcoin Rally Like Dollar, Treasury Yields Rise

However, on February 15 and February 15, shares of the Grayscale Bitcoin ETF were rising as the spot price of Bitcoin was rising. The return has been more than 19% over the past month.

One thing that’s different about the recent rise in Bitcoin’s spot price is that it occurred at the same time as the dollar’s recovery and a rise in Treasury bond yields.

The bullish Invesco DB US Dollar Index fund NYSEARCA: UUPwhich tracks the dollar’s exchange rate against a basket of global currencies, has increased by 2.30% over the past month.

Typically, Bitcoin shows a negative correlation with the US dollar.

This is partly due to the use of the dollar as a reserve currency and partly due to the very nature of Bitcoin.

Bitcoin as a hedge against inflation

As a non-government digital currency, Bitcoin operates independently of central banks and traditional financial systems. Investors can use Bitcoin as a hedge against inflation and monetary devaluation, particularly during times of economic uncertainty, leading to an inverse relationship with the value of the US dollar.

But this time, with the dollar strengthening while interest rates remain stable, institutional investments in Bitcoin are causing the two assets to rally at the same time.

Additionally, Treasury yields rose as January inflation data came in higher than expected.

Bitcoin often declines when Treasury bond yields rise due to rising opportunity cost: rising yields make bonds more attractive compared to volatile assets like Bitcoin.

But as with the dollar, Bitcoin and cryptocurrency stocks are in rally mode as Treasuries rise, a sign that institutional investors perceive less risk with Bitcoin with the new ETF regulations.

Institutional revenue drives Coinbase’s growth

Coinbase cited institutional buying as a factor in the letter to shareholders accompanying its fourth-quarter earnings results.

Institutional transaction revenue was $37 million, up 161% sequentially. Institutional trading volume increased 92% compared to the previous quarter.

Coinbase is the custodian of most of the newly launched Bitcoin ETFs.

“Our strong performance in the fourth quarter was driven not only by improved overall market activity, but also by continued investment in our product offerings,” the company said.

The company added that it saw high levels of client onboarding and strong levels of reactivation of large institutional clients in the fourth quarter.

Coinbase: Review Fee Structure?

Nonetheless, analyst Sandeep Rao, senior analyst at Leverage Shares, an asset manager specializing in leveraged and inverse exchange-traded products, said that once the initial excitement calms down, Coinbase may have to review its asset structure. commissions.

In the long run, Rao added in an email to MarketBeat, as more fund issuers are approved, regardless of whether Coinbase is named custodian, Coinbase’s competition for market share will increase with rival exchanges.

Ultimately, the cheaper ETFs – those that charge investors lower fees – will demand a better deal from Coinbase or find another custodian. This could eat into Coinbase’s revenue and net profit, over time.

Regarding the current post-earnings rally, Rao said that Coinbase’s new initiatives, Coinbase International, Financial Markets and Base, are “effectively poised for new and profitable market opportunities for the company.”

Furthermore, he added, the latest earnings release indicates that the company’s stablecoin debut is now sustainable and responsible for 22% of net revenue, demonstrating that the company now has more diversified revenue streams.

Stablecoins are cryptocurrencies designed to maintain a stable value, often pegged to fiat currencies or assets. They provide a way to transfer value on blockchain networks while minimizing price volatility.

“These factors weigh heavily on the upside seen in Coinbase post-earnings release,” Rao said.

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