Bitcoin ETF Boom Leaves Crypto Stock ETFs Behind

This article is part of a weekly series in February highlighting the growing influence and popularity of cryptocurrency-based ETFs.

After briefly jumping as much as 4.4%, shares of Coinbase Global Inc. (COIN) reversed course to end Friday’s session down by 8%.

News that the Securities and Exchange Commission would dismiss its lawsuit against the firm initially led to the pop, but the gains quickly evaporated as investors sold into the rally.

A drop in cryptocurrency prices and the broader financial markets may have spurred the reversal. But the decline was also illustrative of the general underperformance in shares of crypto-related companies versus bitcoin itself. 

Shares of Coinbase are up 42% over the past year, less than half the gain of bitcoin. Since their stock market debut in 2021—the stock first traded for $381 a share—they're down 38%.

With a $60 billion market cap, Coinbase is the largest publicly traded crypto company in the world. As such, it’s often the top holding of exchange-traded funds that hold stocks of crypto-related firms.   

The Bitwise Crypto Industry Innovators ETF (BITQ), for instance, allocates 9% of its portfolio to the stock.

COIN, BITQ Trail Bitcoin Performance

Just like Coinbase, from an absolute perspective, BITQ has done well over the past year, rising 59%. But that’s significantly less than the 88% gain for bitcoin in the same period.

The fund’s relative gain is even worse over the past three years—just 16% versus 156% for the cryptocurrency.

Ironically, some of the developments that have been cheered by the crypto industry broadly, like the launch of spot bitcoin ETFs in the U.S. and a more permissive regulatory environment, may be working against Coinbase.

With spot bitcoin and ether ETFs readily available, there is less of a need for retail investors to trade directly on Coinbase, where the company charges high fees.

Likewise, as regulators put fewer obstacles in the way of traditional financial institutions getting involved with crypto, that reduces the distinctiveness of many of Coinbase’s products.

Traditional financial firms like State Street Corp. (STT) and Citigroup Inc. (C) have announced their intention to enter the crypto custody space, while Robinhood Markets Inc. (HOOD)—which began as an app for trading stocks and options—has leaned heavily into crypto trading.

The blurring of the lines between traditional financial firms and crypto firms muddies the outlook for ETFs that hold the latter, making it challenging for these funds to keep pace with bitcoin’s gains.