Cathie Wood loves Coinbase (NASDAQ:COIN)and Robinhood (NASDAQ:HOOD). The market is negative on both stocks. Coinbase stock is down 10% this year, and Robinhood shares have lost 31% since the company went public. So why is Wood so bullish?
In a word, crypto. Cathie Wood is a famous Bitcoin bull. While Wood is extremely bullish on Bitcoin -- her public price target is $500,000 by 2026 -- she is also hedging her bets. And we know this because Coinbase is one of her funds' major holdings. Three of her funds have invested a combined $1.65 billion in Coinbase, making it the #3 holding after Tesla and Teladoc Health. Why is she so passionate for this stock? Coinbase is the place you go when you want to buy altcoins (i.e., Coins That Are Not Bitcoin). While Square only has Bitcoin on its Cash app, and Robinhood has only a handful of coins, Coinbase has over 120 different crypto coins you can buy.
Here's why Wood owns Coinbase and Robinhood.
Bitcoin and the Not Bitcoins
Coinbase is where you go to buy Solana, Cardano, and Avalanche. These are the super-fast blockchains that blow the old ones out of the water. In her public statements, Wood is bullish on Bitcoin and Ethereum, and she's "studying" the rest of the crypto universe.
Coinbase is where you go to study. Most observers of the crypto landscape agree that the vast majority of coins are effectively worthless, while a handful (maybe a dozen) coins are incredibly under-valued right now. I think Wood is right on Bitcoin. It is "digital gold," and as an asset class, it is under-represented in institutional holdings. So while a $500,000 call on the coin is really bullish, that could definitely happen.
The weak part of Wood's argument (and she knows it) is the idea that Ethereum is all the altcoin you need. No, sorry, Ether is slow as molasses. So while a sizable number of applications are already built on Ethereum, the underlying blockchain is not fast enough to scale. The upshot is that the "gas fees" to get on the Ethereum blockchain now are ridiculously high. So while Ethereum was your best option three or four years ago, it's a poor option right now.
What about Ethereum 2.0? Here's what Ben Edgington, one of the guys working on the upgrade, said to Cointelegraph:
"The move to proof-of-stake will not immediately provide any significant extra throughput to the Ethereum chain, so I don't expect it to have a measurable effect on gas prices. The scalability strategy in Ethereum now revolves around layer-two solutions like the various roll-ups that are currently being deployed. Once The Merge is done, we will focus on providing data shards within the Ethereum protocol that will allow roll-ups to scale massively."
In other words, an Ethereum blockchain that can compete with the new wave is years away, not months. This is why Cathie Wood owns so much Coinbase stock; Bitcoin and Ethereum are insufficient.
The crypto universe is in a transitional whirlwind. The price of Solana's crypto jumped 10,000% in less than a year. That sort of insane gain doesn't happen when all the important discoveries have already been made. People need speed, and they need it now. Any investors who want those sorts of dramatic returns are opening up accounts at Coinbase, which is the top dog and first mover in crypto shopping.
Robinhood is the King of Memes
While Wood is not as ecstatic about Robinhood as she is about Coinbase, it is a major holding in her various funds. Back in 2018, Robinhood made the decision to list Dogecoin, the first "meme" coin and one of the more useless coins out there. Dogecoin offers no promising tech advancement for crypto developers. It was designed as a joke. Nonetheless, the coin has skyrocketed for early buyers.
An investor on Robinhood might think that Dogecoin is one of the most important coins in the crypto universe. On Robinhood you can buy Bitcoin, Ethereum, Dogecoin, Litecoin, Ethereum Classic, Bitcoin Cash, and Bitcoin SV. In other words, on Robinhood you can buy Bitcoin, Ethereum, one of the Bitcoin or Ethereum spin-offs, or you can buy a joke. So Robinhood would appear to be in the "there are only two cryptos worth buying" camp. If you actually want to research crypto and find the most promising blockchain tech out there, Robinhood is not for you.
Of course, when a major exchange lists a coin for sale, that is a validation of the coin's value. So Robinhood can be criticized -- and has been criticized -- for offering a joke coin to the public.
Why is Wood buying Robinhood? She believes the crypto revolution is a people-led movement. It's been ordinary people who have bought Bitcoin, and it's the financial institutions that are late to the party. Indeed, her investment thesis for Bitcoin is that sooner or later the "smart money" will follow the popular will. So she prizes Robinhood for its emphasis on popularity and giving the people what they want.
If you're serious about crypto and blockchain technology, buy shares of Coinbase. And if you think crypto is a lot of fun, add Robinhood as well.