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Coinbase is buying $500 million in crypto and investing future profits into a crypto portfolio

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Key Points
  • CEO Brian Armstrong said he hopes to operate more of the company's operations using crypto, though it's mixed today.
  • The company plans to invest in "Ethereum, Proof of Stake assets, DeFi tokens, and many other crypto assets supported for trading on our platform," finance chief Alesia Haas said in a blog post.

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The logo for Coinbase Global Inc, the biggest U.S. cryptocurrency exchange, is displayed on the Nasdaq MarketSite jumbotron and others at Times Square in New York, U.S., April 14, 2021.
Shannon Stapleton | Reuters

Coinbase will buy $500 million in crypto on its balance sheet and allocate 10% of its quarterly profits into a crypto assets portfolio, company executives announced late Thursday.

The company plans to invest in "Ethereum, Proof of Stake assets, DeFi tokens, and many other crypto assets supported for trading on our platform," becoming the first public company to do so, finance chief Alesia Haas said in a blog post.

CEO Brian Armstrong first revealed the brokerage's plans in an earlier tweet, saying he expects the allocation to grow as the market matures. He also indicated the company's ambitions to diversify its crypto services and operations, which mostly center around trading.

"Hopefully over time we can operate more of our business in crypto," Armstrong said on Twitter. "Today it is still a mix."

The price of bitcoin climbed higher on the news, passing $47,000 on Friday after sitting below $45,000 the previous two days. Coinbase shares rose more than 3% higher in early trading Friday.

The few companies that have included bitcoin in their holdings, like Microstrategy and Tesla (with the help of Coinbase), have done so as a hedge against inflation and potential devaluation of the U.S. dollar. On Thursday, Citi placed Microstrategy's rating under review, suspending its price target and estimates due to its investment in bitcoin and correlation to the digital currency's price.

The news comes a week after Palantir reported quarterly results showing it bought $50 million in physical gold to reportedly hedge against black swan events. Palantir also said it's accepting customer payments in bitcoin, but that none have used the option.

That same week, Coinbase reported quarterly earnings and growth metrics that wowed analysts, who are mostly patient about the stock's correlation to bitcoin's price and volatility and optimistic about its plans to drive long-term innovation throughout the financial system.

Haas said the investments will be driven by its custodial crypto balances and deployed "over a multi-year window using a dollar cost averaging strategy." She added that Coinbase is investing for the long term and "will only divest under select circumstances, such as an asset delisting from our platform." 

Oppenheimer's Owen Lau said he doesn't expect the new investment policy to lower the correlation between Coinbase and bitcoin "materially in the near future." However, he said he sees it as a signal that Coinbase can "further facilitate and influence both retail and institutional adoption" over time by integrating cryptocurrencies into its own operations, like paying vendors and employees, for example.

The news follows a Wall Street Journal report this week that Coinbase has stockpiled $4 billion in cash to weather regulatory headwinds. Lau noted the company still has plenty of cash on hand despite the transaction.

"Share repurchases and dividends appear to be off the table at least near term, but we believe management will use excess capital to reinvest in the business and make acquisitions, especially in international presence and subscription-based business," he added.