For some investors, Coinbase's stock is a stand-in for the long-awaited bitcoin ETF

For years, many cryptocurrency investors and stakeholders in the U.S. have longed for a bitcoin exchange-traded fund (ETF), which they believe could help crypto go mainstream by giving traders a new way to gain exposure to bitcoin without having to directly invest in it.

And for years, those ETF ambitions have been met with rejections by the U.S. Securities and Exchange Commission. Now some investors think they have the next best thing: Coinbase stock. 

Coinbase, which last week tapped the public markets via a direct listing on Nasdaq, is one of the largest companies in the cryptocurrency market. It has more than six million monthly transacting users and more than $120 billion worth of institutional assets on its platforms. A large portion of Coinbase's revenues at the moment are tied to the trading of bitcoin. Its volumes have grown steadily throughout 2020 and into 2021, as shown in the chart below:

Even Coinbase sees its stock as a proxy for an ETF. In an interview with The Block ahead of its listing, Coinbase chief financial officer Alesia Haas — a former hedge fund executive— said that there is indeed a subset of investors who will think of $COIN in this way. 

Teddy Fusaro, chief operating officer of crypto-asset manager Bitwise, agreed. "It’s similar to having exposure to gold mining companies or oil-producing companies compared to the asset itself," Fusaro said. 

Bitwise, which manages more than $1 billion across a suite of closed-ended funds, is among the many firms that have filed the paperwork with the SEC required to launch a bitcoin ETF.  

Anthony Scaramucci's Skybridge, asset management giant Fidelity, and crypto trading services firm NYDIG have also filed for their own ETFs. 

A bitcoin ETF has been described as a holy grail for the market because it would allow investors to invest in a security product through traditional brokers, which could increase access to the market. Today, investors interested in bitcoin are limited to products that are either closed to non-accredited investors or that trade at a premium or discount to net asset value, like Grayscale’s Bitcoin Trust (GBTC). 

Coinbase began offering shares to the public on April 14, under the ticker symbol COIN. According to Eric Balchunas, an ETF analyst at Bloomberg, thus far COIN has been a “top 10 most active stock.” He added that the stock's trading volume has been between four and five times larger than that of GBTC.

Cathie Wood’s ARK Invest is among the large asset managers snapping up $COIN. ARK — which is also a large holder of GBTC — bought more than $250 million worth of Coinbase shares on its listing day. Today, the ARK Innovation ETF (ARKK), the Ark Fintech Innovation ETF (ARKF) and the ARK Next Generation Internet ETF (ARKW) hold Coinbase shares.

Coinbase stock has also started moving more closely with BTC and GBTC.

Balchunas suggested that the interest in COIN and other crypto stocks reflects a hunger for an ETF-like product. 

Steve Kurz, global head of asset management at Galaxy, agreed. "Over time, we expect a robust ecosystem of equity and ETF access points to become available to investors,” he said. “Until then, we expect growing demand for high-quality listed exposure to crypto will exceed the limited supply."