Not saying this is true for Coinbase specifically, but sometimes it's better to sell shovels during a gold rush than dig for gold itself.

CoinBase makes money through purchase and transfer fees even if the underlying crypto doesn't go up in value or even goes down.

Mature coins no longer go up in value in double digits multipliers but their trade volume is bigger than ever because of the increased interest and online markets, be it the ones on (dark.fail) or Tesla.

Your other choice to benefit from the increase in the trade volume is to setup your own rig and join a mining pool, but that's more involved than what most people are willing to do.

If a coin stagnates in growth, why wouldn't you liquidate and put it into something else that's growing?

Because you need it to make purchases, just like a real world currency. When the Euro goes down, everyday people don't just liquidate all their holdings to USD, because USD isn't accepted in their countries. Take a look at dark.fail or the FBI statements, whenever they shutdown an onion market there is always hundreds of millions in BTC sales they uncover.

Without the dark web markets since The Silk Road in 2011, and now Tesla and big legal companies, coins would have no real purpose to exist. The hype alone isn't enough to keep them all this time and dark web markets aren't quick into adapting new coins each time. Many have ditched BitCoin to Monero only because of the privacy factor, not growth.

The euro doesn't have a fixed supply so your comparison doesn't make any sense to begin with. A better comparison would be like a tree that produces fruit. Once you're at the maximum amount the tree can ever produce why wouldn't you harvest? There's no longer any reason to wait.

An actual use case would be If I am a drug dealer using XMR or BTC to buy and sell my stuff, even if the growth slows down, I can't switch to another coin unless the market does too.

Big amount of BTC trades happen in exchange for goods and services and often time switching coins isn't an option there.

Most people don't understand Bitcoin, and they get their references from the gold rush.

Here the situation is different: in the gold rush gold circulation went up, and gold was devalued, so mining that was even worse business than mining Bitcoin.

The problem with Coinbase is the Coinbase vs Coinbase Pro distinction and the huge margins for the Coinbase product that I expect to go down when people realize it.

You could see an investment in Coinbase as more diversified. It's an investment in the entire cryptocurrency space.

If you buy a specific cryptocurrency and that particular one is hacked or whatever, you lose. But Coinbase won't be sunk by any one cryptocurrency failing. It will be approximately as successful as the most successful cryptocurrency regardless of which one it is, because they all eventually need some kind of connection to the banking system and the US dollar.

There are plenty of possible outcomes that would be better for Coinbase than for Bitcoin. Popularity of Ethereum, any other coins, or other sorts of crypto-based financial instruments. So far Bitcoin has done well but past performance does not necessarily predict future results.

Also, anyone who holds index funds and no cryptocurrency, that strategy essentially ends up in them holding some Coinbase but no Bitcoin.

I don't understand that. Can you spell out the circumstances in which Coinbase increases in price faster than any of the underlying?

For the sake of discussion let's say you can either own some amount of Coinbase or a weighted average of the top 5 coins offered on Coinbase itself.

In my view any instrument or tool that leverages a coin with a fixed supply means more popularity which means higher price for the coin. In the end Coinbase absorbs much of the benefit as it has expenses. I don't see any scenario in which Coinbase is more successful than a basket of the underlying.

Now if coins were inflationary I could understand, but they're not. Seems dumb to buy Coinbase IMHO.

If crypto crashes or stabilized, Coinbase is still (for the time being) making monster spreads/fees on trades.

A basket of the top coins also includes garbage like ADA and XRP. Crypto is not the place to market weight IMO given the frequent disconnect between price and quality of projects.

why wouldn't Coinbase crash if crypto crashed? crypto cashing would mean decline in crypto in general, no?

Crypto crashing means a lot of people selling, hence a lot of trades, hence lots of money for CB.

Yes but it also means lowered future demand for crypto, which means less money for CB in the future, which means a lowered stock price.

It isn't just about "price increasing faster". That isn't how you look at investing.

How do you look at it then?

It is about risk adjusted returns.

Because they have huge revenue and even profit in 2020.

1.14 billion revenue 2020, $322 million net income.

A thesis of the risk of their profit being tied to crypto prices is that big retail trading volume relies on rising prices or at least rising sentiment/popularity.

On the other hand, can argue probably not super important (unless they have huge settlement risk). Falling price = sell orders (and someone buying on the other side of transaction). Unless everything goes to zero, which seems like a low probability barring extreme world-wide government regs.

https://www.cnbc.com/2021/02/25/coinbase-files-for-direct-li...

I guess only if Coinbase stock price was set in Bitcoin. That way, as btc increases, so would the equivalent stock price in dollar.

Consider the end game where Bitcoin achieves its stable store of value. It doesn't go up, but when people buy houses they sell their Bitcoin savings and when people sell their vacation home they park the money in Bitcoin. The more that happens, assuming Coinbase is the intermediary, the more Coinbase revenue goes up with flat coins.

I'm not much of an investor, but I would probably do both. Coinbase is (or at least was) an important company for making bitcoin and other cryptos usable for the general public. If you only bought bitcoin and coinbase and other exchanges died on the vine, it hurts your value.

Also diversification is a good thing.

I guess investing in Coinbase is like investing in Bitcoin _plus_ a lot of other cryptocurrencies. That's a subtle difference compared to investing _only_ in Bitcoin.

Also, Coinbase might come up with additional income sources in the future.

Coinbase would still be around if current cryptos devalued significantly but maintained high trade volumes.

What makes you think many of their seed investors also did not buy Bitcoin as well? They can do both.

I never said their seed investors did not buy Bitcoin?

I think Coinbase might own a lot of Bitcoin in general.