COIN Stock: Why Coinbase Shouldn’t Be Your Vehicle for Playing Bitcoin

Scan the list of top gainers from Tuesday’s topsy-turvy session, and do you know what you’ll find? Bitcoin (CCC:BTC-USD) proxies like Coinbase Global (NASDAQ:COIN) litter the leaderboard. The culprit for their bubbly behavior was unmistakable. Bitcoin prices were up 5% on the session, nearing $58,000 for the first time since early May. So, with all of that in mind, we’ll break down the bullish action and outline why COIN stock may not be the best way to play it.

When I use the term “Bitcoin proxies,” I’m referring to public stocks that exhibit a strong correlation with cryptocurrency. They ride its coattails when bulls run and lose steam when the digital currency falls out of favor.

Among the most liquid (and best-performing on Monday) were Marathon Digital Holdings (NASDAQ:MARA), Riot Blockchain (NASDAQ:RIOT), Bit Digital (NASDAQ:BTBT) and, of course, the Grayscale Bitcoin Trust (OTCMKTS:GBTC). The lot of them all gained anywhere from 4% to 8%. For its part, COIN stock only rallied 3.37%. Still, it was a standout on a day where the S&P 500 fell nearly 0.75%.

The Bitcoin Boom

Before laying out why you should or shouldn’t use COIN stock as your vehicle for crypto exposure, let’s analyze the resurgence in Bitcoin prices. Overall, cryptocurrencies are a perfect vehicle for technical analysis for multiple reasons.

First, it trades 24 hours a day, making messy overnight gaps nonexistent. Second, there aren’t any fundamentals — no earnings, no business model, no industry sentiment, no nothing. Finally, the price of Bitcoin is purely a function of supply and demand. That’s it.

And, despite what might seem like a complicated backdrop of technologically advanced concepts, it’s a straightforward product to chart and analyze. On Oct. 1, Bitcoin surged above resistance, officially turning the daily trend higher. At the same time, we powered above all major moving averages. The follow-through since has been robust and consistent. In less than two weeks, prices have soared some $15,000. The record high of $64,863 is now within striking distance, and I think at least a retest is inevitable.

The awakening in Bitcoin has been echoed by Ethereum (CCC:ETH-USD) and other popular coins. As a result, Coinbase and friends all find themselves riding a bullish wave. But since there’s no shortage of stocks related to the movements of Bitcoin, you can afford to be picky choosing which ones to use. Coinbase wouldn’t be my first choice. It’s not even in my top three.

For starters, even though COIN stock does have a strong relationship with Bitcoin price movements, it’s been woefully unable to hold onto any gains. For instance, COIN stock has a 10-day correlation of 0.93 with Bitcoin. And yet, while the crypto king has nearly doubled since July 20, Coinbase shares have only risen 13%.  Such a discrepancy must be disappointing for those who entered the stock thinking it was a clever way of getting exposure.

For comparison’s sake, MARA stock is up 80%, GBTC is up 77% and BTBT is up 151%. So, here’s the bottom line: There are far more effective ways to get access to the powerful upside volatility of bitcoin than to settle with Coinbase shares.

COIN Stock Chart Lacks Oomph

If I could spin a bullish narrative using the Coinbase stock chart, then perhaps I’d recommend a long trade regardless of the inability to follow bitcoin better. But, alas, I can’t. I count four separate attempts to kickstart an uptrend over the past four months. Each ultimately failed. And now, both the 20-day and 50-day moving averages are treading water.

There’s simply no momentum or trend backing buyers right now. And even with the ongoing surge in crypto prices, all COIN stock has been able to muster is a bounce to the middle of its five-month range.

In summary, there are far better ways to play the Bitcoin boom — and Coinbase doesn’t have a bullish enough chart to buy it on its own merits.