Best Cryptocurrency Exchange App

Analyzing the Underperformance of Three Bitcoin-related Asset Classes and Selecting the Best One

Analyzing the Underperformance of Three Bitcoin-related Asset Classes and Selecting the Best One
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However, after being adopted by some of the big names mostly to boost their balance sheets as well as being introduced as part of new funds like the ProShares Bitcoin Strategy ETF (BITO) in October 2021, the cryptocurrency is still able to post a one-year gain of 3.64%. However, the volatility associated with Bitcoin could either lead to a continuation of the downside in the event that US regulators plan some aggressive moves or a staggering increase in the event that it is adopted by a large institution.

Referring to the orange chart below, BITO, which provides investors with exposure to Bitcoin through its futures contracts (futures price hike), rather than owning the cryptocurrency itself, has suffered 37% in the past three months. This means twice as much performance than the digital asset itself. According to the fund’s prospectus, this is explained by the “deferment effect” and occurs when the fund sells the expired contract at a relatively lower price and buys long-term contracts at a relatively higher price. Conversely, the fund can also take advantage of the “reversal effect” when it sells an expired contract at a higher price than it pays for a new long-term contract.

However, according to ETF Trends, despite the recent volatility, BITO inflows remained flat in January, indicating that those with a long-term investment objective are opting for an ETF rather than having to own a crypto portfolio.


Next, as a Bitcoin miner (or producing coins using computing equipment) as shown in the pale blue chart above, Marathon Digital Mining (NASDAQ:MARA) experienced a higher level of volatility, rising by 60% in the first week of November. (November), but is currently down a painful 40%. Looking at the industry, other miners such as Riot Blockchain (NASDAQ: RIOT) have also been affected. One of the reasons miners are suffering is that in addition to minting digital currencies, they are also hoarding (storing bitcoins) rather than selling them. Thus, unless you have a more commercial profile, avoid miners.

On the other hand, Coinbase Global (NASDAQ:COIN), with a crypto exchange app designed for cryptocurrency trading, was less affected by -17.23% as shown in the green chart above, due in part to the platform’s lower exposure to bitcoin, than 57% in 2020 to 42% in 2021. For further research, the company is working to diversify revenue beyond retail cryptocurrency.

In this regard, non-commercial revenue consisting of subscriptions and services, which increased from 4% in the third quarter of 2020 to 12% in the third quarter of 2021, appears to be on an increasing trend. In addition, by offering services such as blockchain rewards and Earn campaign, as well as planning an NFT (non-fungible token) platform to benefit from Decentralized Finance (DeFi) products, Coinbase is one of the best Bitcoin related investments one can currently consider.

To further justify my bullish stance, the cryptocurrency exchange boasts $6.3 million on its balance sheet, and most importantly it generates operating income, not a loss as is the case with most miners.

Source: SEC filings

Finally, with current inflation expectations and the Federal Reserve cutting back on monetary stimulus, Bitcoin, in the same way as many rich tech stocks, is no longer benefiting from an increase in the money supply. Thus, it is best to avoid exposure to a devaluation by investing in asset classes that directly expose the value of bitcoin such as BITO and crypto miners. Alternatively, an exchange like Coinbase that leverages trading-based revenue and diversifies into value-added services around the crypto ecosystem makes more sense. Thus, the company could rise to the $250 range once it launched Coinbase NFT, a new product experience where users can mint, collect, discover and display NFT products, all in one place.

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