I increasingly think of Bitcoin as the Master of Ceremonies of the Crypto boom but not necessarily the best way to invest in what is happening. Not a bad way, of course! The chart looks strong with a fresh breakout from a sizeable consolidation. The likelihood of the coin making further new all-time highs looks good.
The strength of the crypto market and maybe the general flight from paper assets is having a dramatic effect on some alternative crypto-related investments. One of the best is Coinbase Global (COIN), already much-recommended in Quentinvest and worth a further look.
A Deeper Dive into Coinbase Global
Below is a quick snapshot of what Coinbase is all about.
There is a great deal happening at Coinbase.
We are driving a strong future for crypto by building trusted products. In 2023, Coinbase paired operational excellence with product innovation to deliver a strong year of execution against our product roadmap. We made progress in derivatives by launching Coinbase International Exchange and US derivatives products from Coinbase Financial Markets (CFM). We expanded operations internationally by obtaining licenses or registrations or launching in key growth countries – including Bermuda, Brazil, Canada, France, Singapore, and Spain. On the institutional side, we grew our institutional financing product, launched Coinbase Asset Management, and more recently in January 2024, began playing a key role as custodian for 8 of the 11 Bitcoin ETFs. We reached an updated arrangement with Circle to help expand the utility of USDC. We launched Base, our layer 2 network, which aims to improve speed, lower cost, and integrate developers into the Coinbase ecosystem. Lastly, we updated Coinbase Wallet to make sending crypto as simple as sending a text.
Shareholder letter, Coinbase Global, Q4 2023, 15 February 2024
The latest quarter showed many signs of a business picking up steam.
Q4 institutional transaction revenue was $37m, up 161pc Q/Q. Institutional trading volume increased 92pc Q/Q, in-line with the US spot market. Our strong performance in Q4 was driven not just by improved broader market activity, but also by continued investment in our product offering. Q4 trading volume benefited from strong growth in both Markets – which largely consists of market maker activity – and Coinbase Prime. The growth in Coinbase Prime volume resulted in a higher blended average fee rate in Q4 compared to Q3.
Strength in Prime volume was driven by stronger market conditions, including the anticipation of Bitcoin ETF approvals – coupled with our widening product portfolio. As of Q4, 33pc of the 100 largest hedge funds in the world by reported AUM had chosen to onboard with Coinbase. Also in Q4, we continued to see elevated levels of client onboarding and strong levels of re-activation of large institutional clients across our product suite. We were pleased to see strong growth in clients leveraging our Prime Financing products – including trade financing and portfolio margin.
Shareholder letter, Coinbase Global, Q4 2023, 15 February 2024
Strategy – Buy Shares in Coinbase Global
Coinbase is a strange share to hold, like Microstrategy, because the price is dramatically influenced by Bitcoin which trades 24 hours a day. So COIN and MSTR frequently open at sharply different levels to where they closed in the previous day’s trading. These are not shares for the faint-hearted.
The reason for buying them is the possibility that crypto prices will go much higher and cryptos and stable coins will be more widely accepted and play a greater role in the global financial system. I think this will happen but you could say what do I know. The possibility is sufficiently plausible to be worth investing in and both shares have been excellent performers in the recent past and have a marked tendency to outperform most cryptos.
This is a strange-looking chart. One reason is that in 2020 the company changed its business model when it began to buy Bitcoin on the way to becoming the world’s largest corporate holder of Bitcoin with 214,000 coins, over one per cent of the total Bitcoins that can ever exist.
This was an astonishingly bold move by executive chairman and founder, Michael Saylor, who has become an evangelist for Bitcoin, talking of the price moving ultimately into the millions of dollars and has refocused his company as what he calls a Bitcoin development company. I don’t know what that means but investors seem to like the idea.
My main feeling about Bitcoin is that acceptance does seem to be growing and if Bitcoin can reach $70,000 why not $1m? Ultimately these are just numbers and Bitcoin’s lack of recognisable fundamentals means the price can be whatever buyers and sellers determine. It is probably not a good idea to sell the house to buy Bitcoin but some exposure makes sense.
Share Recommendations
Coinbase. COIN. Buy @ $260
Microstrategy MSTR. Buy @ $1950
The price of Microstrategy has been outperforming Bitcoin. A possible explanation is that helped by its focus on AI investors think that the company’s software business is at a turning point.
MicroStrategy Incorporated has introduced a new AI bot, MicroStrategy Auto, designed to deliver business intelligence across organisations. This AI-powered bot is an enhancement to MicroStrategy AI, which was launched in October 2023. MicroStrategy Auto provides a faster, simpler way to deliver business intelligence to anyone in an organisation. It can function as an independent application within the MicroStrategy ONE library or integrate into third-party apps.
MicroStrategy Auto is a lightweight, embeddable solution with extensive customisation options. These include appearance, language, and detail level adjustments. The bot is based on a generative AI foundation, allowing for natural language interactions. This makes enterprise analytics accessible to all users, regardless of their skill level or the applications they use. By simplifying access to analytics, Auto enhances decision-making speed and effectiveness. It enables users to request information in plain language without navigating complex dashboards, boosting productivity for both data consumers and creators.
Trading View, 27 March 2024
