The recent surge in crypto-linked ETFs has underscored their outperformance relative to bitcoin and other digital currencies. This trend was particularly evident following the substantial rise in shares of Coinbase Global Inc. (COIN), which soared after the crypto exchange announced its first quarterly profit in three years.
Coinbase, recognized as the largest U.S. cryptocurrency exchange platform, experienced a remarkable 16% surge in early afternoon trading. This surge was fueled by the company’s announcement of a 64% increase in fourth-quarter transaction revenue. This growth was primarily driven by the highly anticipated approval from the Securities and Exchange Commission (SEC) for. The first spot bitcoin ETFs, which were launched on January 12. Coinbase’s profit for the quarter amounted to $273.4 million, or $1.04 per share, a stark contrast to the loss of over half a billion dollars reported in the same period the previous year. Additionally, Coinbase’s revenue surpassed analysts’ expectations.
The impressive quarterly earnings report from Coinbase, whose platform enables individuals and institutions to buy, sell, trade. Store cryptocurrencies, coincides with the continued outperformance of crypto stocks and equity-based cryptocurrency ETFs compared to bitcoin, as was observed throughout 2023.
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BITQ, Crypto ETFs Outperform Spot Bitcoin ETFs
One notable example of this outperformance is the Bitwise Crypto Industry Innovators ETF (BITQ), which includes a significant 9% allocation to Coinbase. BITQ has surged by 24% over the past month as of February 15, significantly outpacing the performance of the largest spot bitcoin ETF, the iShares Bitcoin Trust (IBIT), which saw an 18% increase over the same 30-day period.
BITQ gained further recognition by being featured in etf.com’s 24 ETFs for 2024 series and is a finalist for the ETF of the year award in the upcoming 2024 etf.com Awards. In 2023, BITQ was one of the top-performing ETFs, boasting a gain of nearly 250%, surpassing bitcoin’s price increase of approximately 150%.
The Lure of ‘Pick and Shovel’ Crypto ETFs
BITQ and other equity-based crypto ETFs are often referred to as “pick and shovel” investments. This strategy involves investing in the suppliers, tools, and services that are essential for an industry experiencing high demand. The term is inspired by the gold rush era, where significant profits were not made directly from panning for gold, but from selling picks and shovels to the miners.
Investors can opt to invest in equity-based crypto ETFs instead of speculating directly on the price of bitcoin. These ETFs hold positions in bitcoin miners and companies like Coinbase, which can benefit from the high-volume trading of bitcoin and other cryptocurrencies, even if the digital currencies themselves are not performing well.
Mitigating Market Risks with Crypto ETFs
Investing in crypto ETFs can also help to mitigate market risks by diversifying across a range of crypto industry companies, rather than focusing on a single entity like Coinbase. However, despite the attractiveness of cryptocurrency and crypto stocks, investors should be aware of significant market risks. For instance, while Bitcoin has been in existence since 2009, the crypto investment market in terms of stocks. ETFs is still in its early stages, and extreme price volatility can still be expected.
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“This data underscores considerably stronger profitability in the mining sector compared to challenges experienced in 2022 and part of 2023.”
In approximately six months, Bitcoin undergo a “halving,” reducing the new bitcoins awarded to miners by half. Satoshi Nakamoto introduced this event in 2009 as an anti-inflationary measure. Occurring roughly every four years, the lead-up to halvings traditionally proves the most profitable time for crypto investors. “Buying bitcoin six months before a halving and selling 18 months after has historically outperformed a ‘buy and hold’ strategy,” affirms the analyst.
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