Coinbase, the most anticipated initial public offering this year, made its debut on the Nasdaq stock exchange and it didn’t disappoint. The stock opened at $381, popped to $429.54 and eventually ended the day at $328.28. That’s an immense market cap of $86 billion.
The San Francisco-based company is the first U.S. cryptocurrency exchange to go public and has ushered in a new era of maturation for digital assets such as bitcoin, ethereum and others.
“The main message from the extraordinary success of Coinbase is that all investors should have some bitcoin in their portfolio right away, even if they start at just a 1% or 2% weighting,” said David Kriences, founder at ETF Portfolio Management in Westlake Village, Calif.
If you missed the Coinbase IPO, which ETFs will end up investing in the stock?
“We expect actively managed blockchain-related or disruptive technologies ETFs such as Amplify Transformation Data Sharing ETF (BLOK), ARK Innovation ETF (ARKK) and ARK Fintech Innovation (ARKF) could own COIN within the first day or so,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA Research.
This year has seen 106 IPOs, or nearly threefold more than last year, according to Renaissance Capital. The research firm, which also manages the Renaissance IPO ETF (IPO), lists Coinbase as the largest U.S. IPO of all time, with $28.7 billion raised.
Rosenbluth said he expects IPO-related index-based ETFs like Renaissance IPO ETF to be an early adopter, though he noted that most other index-based ETFs could be slower on the draw as they consider COIN during their normal reconstitution process for their underlying benchmark. And he noted that companies need to trade for a specified time period before being added to established benchmarks like the S&P 500 Index.
Given the surging performance of bitcoin and other cryptos, the timing of Coinbase’s IPO was perfect.
The Grayscale Bitcoin Trust (GBTC) has jumped 60.9% since the start of the year, while the Grayscale Ethereum Trust (ETHE) has risen 43.1%. James Seyffart, a crypto analyst at Bloomberg, estimates the current pace of GBTC’s asset growth will surpass the SPDR Gold Shares (GLD) in roughly six weeks. If that happens, it’ll be an impressive feat given the fact GBTC launched 10 years after GLD.
For financial advisors with clients clamoring to buy Coinbase, blockchain- and crypto-focused ETFs offer another route for exposure to this fast-growing market. Diversifying away from single-stock risk can help investors stay out of trouble if a company begins to falter.
Like it or not, cryptocurrency investing is here to stay.
“Investors that don’t have a long-term buy-and-hold allocation to bitcoin at this point are effectively saying that they know more than Elon Musk, Jack Dorsey, Michael Saylor and Raoul Pal—which is not likely,” said Kriences.”I suspect a large number of ETFs will add a position in COIN very quickly.”
Ron DeLegge is founder and chief portfolio strategist at ETFguide, and is the author of "Habits Of The Investing Greats."