Crypto-linked ETFs rose, highlighting their outperformance against bitcoin and other digital currencies, as shares of Coinbase Global Inc. (COIN) surged after the crypto exchange reported its first quarterly profit in three years.
Share of Coinbase, the largest U.S. cryptocurrency exchange platform, jumped 16% in early afternoon trading after as the company reported a 64% jump in fourth-quarter transaction revenue driven largely by the Securities and Exchange Commission’s highly anticipated approval of the first spot bitcoin ETFs, which launched Jan. 12. Profit was $273.4 million, or $1.04 a share, compared with a loss of more than half a billion dollars in last year’s fourth quarter. Revenue topped analysts’ expectations.
The strong quarterly earnings report for Coinbase, whose software allows individuals and institutions to buy, sell, trade and store cryptocurrencies, comes as the crypto stock and equity-based cryptocurrency ETFs continue to outperform bitcoin, as they did in 2023.
BITQ, Crypto ETFs Outperform Spot Bitcoin ETFs
The Bitwise Crypto Industry Innovators ETF (BITQ), which has a nearly 9% allocation to Coinbase, is up 24% over the past month as of Feb. 15. This equity-based crypto ETF significantly outperforms the largest spot bitcoin ETF, the iShares Bitcoin Trust (IBIT), which had an 18% increase over the 30-day period.
BITQ, which is featured in etf.com’s 24 ETFs for 2024 series and is an ETF of the year finalist in the upcoming 2024 etf.com Awards, was one of the top-performing ETFs of 2023 with a gain of nearly 250%. This giant performance for the year eclipsed bitcoin’s price gain of roughly 150%.
The Lure of ‘Pick and Shovel’ Crypto ETFs
BITQ and other equity-based crypto ETFs have been coined as a type of “pick and shovel” investing, which is a strategy where you invest in the suppliers, tools, and services that are essential for an industry in high demand. It’s inspired by the gold rush, where the real money wasn’t made from panning for gold directly, but from selling picks and shovels to the miners.
Instead of speculating on the price bitcoin, investors can choose to buy equity-based crypto ETFs, which hold bitcoin miners and companies like Coinbase, which can profit from high volume trading of bitcoin and other cryptocurrencies, even if the digital currencies are not themselves performing well.
Crypto ETFs can also help to minimize market risk by diversifying across a range of crypto industry companies, rather than just one name like Coinbase.
Still, as alluring as cryptocurrency and crypto stocks may appear, there are still significant market risks for investors to understand. For example, although Bitcoin has existed since 2009, the crypto investment market in terms of stocks and ETFs is still in its infancy and extreme price volatility is still to be expected.