One of the most outspoken investors on Wall Street is Ark Invest Chief Executive Officer Cathie Wood. Wood is known for unconventional, maybe even outlandish, predictions for trends in emerging technology. Across all of her exchange-traded funds (ETFs), her largest holding is cryptocurrency trading platform Coinbase (COIN 5.68%). Given Wood's extremely bullish stance on Bitcoin, it makes sense that she would acquire such a large position in Coinbase.
However, a more likely explanation supporting Coinbase as Wood's top holding is the stock's near 400% rally in 2023. With such a rebound from all-time lows, could Coinbase possibly be a buy in 2024? Or, should investors start taking profits?
Let's dig into what might help fuel additional growth for Coinbase as 2024 quickly approaches.
Keep an eye on Bitcoin
About a year ago, Coinbase stock was trading for roughly $32 per share. With only a few trading days left in 2023, Coinbase currently trades for about $175. Such a meaningful move in the stock surely was driven by more than a collective buy-the-dip mentality.
The chart above illustrates the price movements in Bitcoin versus Coinbase stock since the company's initial public offering in 2021. It's astounding how similar the price movements are. In a way, investors could think of Coinbase as a proxy for Bitcoin and the crypto market in general. As the chart shows, Coinbase stock tends to move in tandem with investor sentiment around Bitcoin. In other words, as crypto prices appreciate, so does Coinbase stock -- and vice versa.
After enduring a brutal crypto winter for much of 2022, investor enthusiasm returned in 2023. While this is nice for investors in Coinbase and Bitcoin, it's a bit of a head-scratcher, right? Not so fast.
Image source: Getty Images.
Is institutional support finally here?
One of the primary catalysts fueling renewed interest in crypto is the possibility of spot Bitcoin ETFs. The Securities and Exchange Commission (SEC) is currently reviewing applications from Ark Invest, mutual fund manager VanEck, BlackRock, and several others.
SEC approval for these spot Bitcoin ETFs would be an important milestone for the crypto industry as it adds much-needed regulatory validation to an otherwise speculative investment opportunity. The obvious benefits of these ETFs are that they would provide investors with exposure to Bitcoin without needing to directly purchase the token itself, or jump through the various hoops required to purchase crypto.
While SEC approval for spot Bitcoin ETFs will likely lead to some ratcheted crypto buying, which could benefit Coinbase, the company actually has a more subtle, yet lucrative, opportunity.
Is Coinbase stock a buy in 2024?
According to regulatory filings, BlackRock entered into a strategic partnership with Coinbase and expects the platform to play an integral role should the spot ETF be approved. Given that BlackRock is the largest money manager in the world, tapping Coinbase as its primary custodian could prove to be a big opportunity as it relates to transaction fees -- one of Coinbase's core revenue streams.
Moreover, if progress is made at the regulatory level, I surmise that more institutional investor support will follow in the crypto markets -- a factor that could contribute to an increase in trading on Coinbase's platform regardless if it occurs through the relationship with BlackRock.
To me, investing in Coinbase in 2024 is fairly binary. If any of the spot ETFs are approved, I think the crypto market will see a surge in trading. But if not, the bears could very well come out of their caves and ignite a precipitous sell-off.
Investors who are interested in Bitcoin or crypto in general should consider a position in Coinbase as it represents a more passive way to participate, shielding you from the volatility of a specific token. If you are bullish on regulatory momentum, then Coinbase stock could be a unique way to benefit from secular tailwinds in crypto. But with that said, the trends outlined above clearly illustrate that Coinbase stock follows an abnormally close pattern compared to the broader themes in crypto. And with the spot ETF approvals still widely speculative, a position in Coinbase should be viewed as such.
