How Bitcoin ETFs Are Eating Coinbase’s Lunch

Coinbase (COIN), the largest cryptocurrency exchange in the US, saw its stock price plunge by 17% in the past week, as investors shifted their attention to the newly launched Bitcoin exchange-traded funds (ETFs).

The Bitcoin ETFs, which track the performance of Bitcoin futures contracts, have attracted billions of dollars in inflows since their debut on October 19, 2023. The first Bitcoin ETF, ProShares Bitcoin Strategy ETF (BITO), has amassed over $1.5 billion in assets under management, while the second one, Valkyrie Bitcoin Strategy ETF (BTF), has gathered over $200 million.

The Bitcoin ETFs offer a convenient and regulated way for investors to gain exposure to the price movements of Bitcoin, without having to deal with the complexities and risks of buying and storing the actual cryptocurrency. The ETFs also have lower fees than Coinbase, which charges up to 3.99% for some transactions.

The launch of the Bitcoin ETFs has been seen as a major milestone for the crypto industry, as it signals the growing acceptance and legitimacy of Bitcoin as an asset class. However, it also poses a competitive threat to Coinbase, which derives most of its revenue from trading fees.

Coinbase, which went public in April 2023, has been struggling to maintain its growth momentum amid the volatility and regulatory uncertainty in the crypto market. The company reported a 38% decline in revenue in the second quarter of 2023, compared to the previous quarter, and warned of further fluctuations in the future.

Coinbase's stock price, which peaked at $429.54 on its first day of trading, has fallen by more than 50% since then. The stock closed at $208.70 on Tuesday, October 24, 2023, down 17% from a week ago.

Analysts have mixed views on Coinbase's prospects, as some see it as a proxy for the crypto industry, while others question its valuation and competitive edge. According to MarketBeat, the average 12-month price target for COIN is $327.35, implying a 57% upside from the current level. However, the range of estimates is wide, from $150 to $650.

Coinbase faces several challenges and opportunities ahead, as it tries to diversify its revenue streams, expand its global presence, and cope with the regulatory scrutiny and competition in the crypto space. The company has recently announced several initiatives, such as launching a crypto app store, acquiring a crypto derivatives platform, and partnering with a digital bank.

Whether these moves will be enough to boost Coinbase's stock price and fend off the Bitcoin ETFs remains to be seen. For now, investors seem to prefer the simpler and cheaper way of accessing the crypto market through the ETFs, rather than the more complex and costly way of using the exchange.