- Coinbase stock price has jumped by over 60% in the past 12 months.
- The company has benefited from the ongoing crypto rally.
- CONY ETF has done well as it drew income-focused investors.
Coinbase (COIN) stock price has done well in 2023, helped by the strong crypto comeback. The shares have surged by over 60% in the past 12 months, giving the company a combined market cap of over $60 billion. This makes it the biggest crypto-related stock in the United States.
Why Coinbase stock has surged
Coinbase share price has been in a relentless bull run in the past few months, which has helped it pare back the decline we saw in 2022. This rally is primarily because of the strong performance of cryptocurrencies.
Bitcoin, the biggest cryptocurrency in the world, has jumped from last year’s low of $15,000 to over $37,000. Other cryptocurrencies like Ethereum, Solana, Cardano, and Internet Computer (ICP) have also soared.
In most periods, Coinbase share price jumps when these cryptocurrencies are thriving. For one, it leads to more volume in its ecosystem. It also leads to unrealized profits for its cryptocurrency holdings.
Coinbase stock has also roared back because of the ongoing Bitcoin ETF news. The company will benefit in this for two reasons. First, an approval is expected to lead to more gains in the crypto market.
Second, the company will be a key beneficiary since it will be the key custodian of most of these coins. A custodian is a company that keeps these coins safe for companies like Blackrock, Franklin Templeton, and Invesco.
Further, PayPal has become the biggest crypto exchange in the US after the collapse of FTX and the woes facing Binance US. Americans use it because it is the only one audited by a big 4 auditing company and regulated by the SEC as a publicly-traded company.
Is the CONY ETF a good buy?
Coinbase, like other companies in its stage, does not pay a dividend. As a result, it is fawned by income-focused investors. Therefore, a good number of them are moving to the recently launched YieldMax COIN Option Income Strategy ETF (CONY). This ETF has a distribution rate of 58.80% and a 30-day yield of 4.16%.
CONY ETF has seen strong inflows in the past few months. It has added assets in the past four months and they are now nearing $100 million. Further, the CONY ETF has outperformed COIN since its inception as it has jumped by 25% compared to COIN’s 14%, as shown below.
The YieldMax COIN Option Income Strategy ETF is a fund that aims to benefit when Coinbase stock rises. It also aims to reduce its downside. It works in a relatively complicated way for most people.
The developers first create a synthetic asset that tracks the performance of the COIN stock price. They then buy that stock. In the next stage, they sell call options to that synthetic asset with a certain strike price. The final stage is where they allocate funds to US Treasuries.
In this case, if the COIN stock rises, CONY does well for two reasons. The synthetic asset will bounce back while the creators keep the premium. The only challenge comes up when the stock surges hard since these gains are capped by the options strike price.
If the stock remains intact, the fund will make money by collecting the premium. Finally, if it drops, the losses will be compensated slightly by the premium.
To be clear, there are risks for investing in CONY and other covered call ETFs. For example, in most cases, the total return of the fund tends to be weaker than the real asset when there is a strong rally. For example, Tesla stock has historically done better than the TSLY ETF. As shown below, CONY is seeing more inflows recently.
