Stocks of companies that run exchanges usually rise and fall depending on the popularity of what is traded on them. But Coinbase Global takes this correlation to a completely different level.
For the largest US crypto exchange, this means learning about Bitcoin, specifically its movement during the weekend, as such gives investors an idea of how the company may open on the Nasdaq index any Monday.
Take, for example, this weekend when Bitcoin is up about 7.5%. Coinbase shares almost perfectly matched this metric, gaining 8% during Monday's session.
This often happened in recent weeks, even on the second weekend of July, when BTC fell by 2%. The following Monday, Coinbase lost 2.4%. And when Bitcoin retreated 3% over the weekend after that, Coinbase slipped 2%.
Such a scenario does not necessarily occur every day or every weekend, but enough that Coinbase's correlation with Bitcoin is an indication of how far the two are moving in tandem.
"It's a very rough proxy, but I can understand why it would be a proxy," said BTIG analyst Mark Palmer. The situation is understandable because Bitcoin is traded 24/7 unlike most traditional assets.
Jerry Braakman, CIO at First American Trust, also said Coinbase correlates with Bitcoin and Ethereum because that is where most of crypto assets trade.
But Palmer says Coinbase's reliance on Bitcoin is declining, as the company continues to diversify its platform by adding other crypto assets. Bitcoin now accounts for roughly 44% of the exchange's transaction revenue last year, up from roughly 60% in 2019.