For more than a century, the stock market has been the greatest wealth creator on the planet. Despite crashes and corrections happening with fairly common frequency, the market’s major indexes have handily outperformed other assets and commodities over the long run…
But things changed when Bitcoin (CRYPTO:BTC) and other cryptocurrencies made their debut. Over the past decade, it’s digital currencies that have predominantly left equities eating their dust. The euphoria surrounding crypto, coupled with Bitcoin hitting a recent all-time high of nearly $65,000, paved the way for one of the most anticipated initial public offerings of the year last week: Coinbase Global (NASDAQ:COIN).
Is this the mother of all FOMO trades?
In Coinbase’s own words, it’s “building a cryptoeconomy” that will allow everyone access to buy, sell, and use many of the world’s most popular digital currencies. At the end of the first quarter, Coinbase had 56 million verified users and was securing $223 billion in total assets. For some context, that’s up from $90 billion in total assets just three months prior. It also brought in $1.8 billion in revenue in Q1 2021, which is more than the company generated in all of 2019 and 2020 combined. Maybe it shouldn’t be a surprise that it ended its first week as a public company with a market valuation of $67 billion.
Then again, the risk factors Coinbase listed in its March prospectus are a veritable mile long. For instance, a majority of the company’s revenue comes from trading in Bitcoin and Ethereum. If the price of and/or interest in these popular digital currencies fades, Coinbase can be adversely impacted. Take note that its annual trading revenue fell off a cliff between 2017 and 2018 — $927 million to $520 million — as Bitcoin declined from what was then a record high.
Coinbase is also exposed to competition and a potentially low barrier to entry. Over time, we watched as traditional brokerages undercut each other on price and eventually drove away trading commissions on stocks entirely. There’s nothing to stop other cryptocurrency platforms from undercutting Coinbase’s transaction fees and reducing its returns over time.
Regulation is another serious concern. As digital currencies gain in value, the likelihood of government oversight increases exponentially.
The point is this: Coinbase is nothing more than an investment in FOMO (fear of missing out). It’s reliant on assets that have no financial backing and often extremely limited or nonexistent utility. Betting on investors’ emotions is not something you should consider doing with your money.
Forget Coinbase: These stocks are much better buys
Instead of throwing a dart at Coinbase and hoping investors don’t lose interest in cryptocurrencies, I’d suggest putting your money to work in a trio of sound companies with clearly identifiable competitive advantages. These are some of the best stocks you can buy right now.
Don’t let its size fool you: Social media giant Facebook (NASDAQ:FB) is still in the early to middle innings of its growth phase. This means there’s plenty of upside still to come for patient investors.
With Facebook, the proof is in the pudding. It ended 2020 with 2.8 billion monthly active users visiting its namesake site, as well as another 500 million unique visitors heading to Instagram or WhatsApp, which it also owns. That’s 3.3 billion people (over 42% of the adults on planet Earth) visiting a Facebook-owned asset on a monthly basis. Advertisers wanting to reach a highly targeted or broad audience don’t have a more attractive place to spend their dollars.
Now, here’s where things get interesting. Even though Facebook brought in $84.2 billion in advertising revenue last year, this was almost entirely generated from its namesake site and Instagram. Neither WhatsApp nor Facebook Messenger has been meaningfully monetized as of yet. When Facebook does green-light some form of significant monetization from these extremely popular social platforms, its cash flow will soar.
Also, don’t overlook Facebook’s moneymaking potential beyond advertising. It’s set to introduce…
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