The cryptocurrency industry is having a moment. Crypto trading platform Coinbase Global Inc. NASDAQ: COIN is up 29% in February, following a profitable quarter that beat estimates by a wide margin.

You can see those results on MarketBeat’s Coinbase Global earnings page. 

Other crypto stocks, such as Bitcoin miner CleanSpark Inc. NASDAQ: CLSK have posted monster rallies in recent sessions.

CleanSpark is representative of the volatile crypto space, with a beta of 3.01, meaning it’s about three times as volatile as the overall market. It tends to magnify market movements, both up and down.

That’s been fairly common among crypto stocks as a whole. Even large-cap Coinbase has a beta of 2.52, indicating extraordinarily high volatility, relative to the broader market. 

But wait, there’s more. 

Billions flowing into Bitcoin ETFs

Since the launch of Bitcoin spot exchange-traded funds in January, the market has seen more than $3 billion flowing into these products. 

Make no mistake: That’s not Mom and Pop betting their retirement on Bitcoin; that’s money from institutional investors and financial advisors getting in on the act, now that there’s more regulatory protection for their clients.

The iShares Bitcoin Trust NASDAQ: IBIT rocketed to more than $5.6 billion in assets in a little over a month after launching. That’s a faster rate of asset-gathering than gold ETFs when they launched two decades ago. 

The IBIT ETF has returned more than 18% since its launch. 

The Grayscale Bitcoin Trust NYSEARCA: GBTC, which started the whole regulatory approval party, has seen $6.5 billion in outflows, partly due to a high expense ratio versus other spot bitcoin ETFs.

Bitcoin rallying as dollar, Treasury yields rise

One thing that’s different about the recent rise in the spot price of Bitcoin is that it’s occurred simultaneously with a resurgent dollar and an increase in Treasury yields. 

The Invesco DB US Dollar Index Bullish Fund NYSEARCA: UUP, which tracks the dollar’s exchange rate versus a basket of global currencies, is up 2.30% in the past month. 

Typically, Bitcoin shows a negative correlation with the U.S. dollar. 

That’s partly due to the dollar’s use as a reserve currency, and partly due to the very nature of Bitcoin.

Bitcoin as an inflation hedge

But this time around, with the dollar strengthening as interest rates hold steady, institutional investment in Bitcoin is causing the two assets to rally at the same time. 

Also, Treasury yields have been rising as January inflation numbers came in higher than expected. 

Bitcoin often declines when treasury yields rise due to increased opportunity cost: Rising yields make bonds more attractive compared to volatile assets like Bitcoin.

But as with the dollar, Bitcoin and cryptocurrency stocks are in rally mode as Treasuries rise, a sign that institutional investors perceive less risk with Bitcoin with the new ETF regulations. 

Institutional revenue driving Coinbase growth

Coinbase cited institutional buying as a factor in its shareholder letter accompanying the fourth-quarter earnings results. 

Institutional transaction revenue was $37 million, up 161% sequentially. Institutional trading volume increased 92% over the previous quarter. 

Coinbase is the custodian for the majority of the newly launched Bitcoin ETFs. 

“Our strong performance in Q4 was driven not just by improved broader market activity, but also by continued investment in our product offering,” the company said.

The company added that in the fourth quarter, it saw elevated levels of client onboarding and strong levels of re-activation of large institutional clients.

Coinbase: Revise fee structure?

Nonetheless, analyst Sandeep Rao, a senior analyst at Leverage Shares, an asset manager specializing in leveraged and inverse exchange-traded products, said once the initial hype has settled, Coinbase may need to revise its fee structure.

Over the longer haul, Rao added in an email to MarketBeat, as more fund issuers are approved, regardless if Coinbase is named custodian, Coinbase’s competition for market share will ramp up with rival exchanges.

Eventually, cheaper ETFs, meaning those charging lower fees to investors, will demand a better deal from Coinbase, or find another custodian. That could put a dent in Coinbase’s revenue and net income, over time.

When it comes to the current post-earnings rally, Rao said Coinbase’s new ventures Coinbase International, Financial Markets and Base are “effectively primed for new and profitable market opportunities for the company.”

Furthermore, he added, the latest earnings release indicates that the company’s stablecoin debut is now sustainable and responsible for 22% of net revenue, showing that the company now has more diverse revenue streams. 

Stablecoins are cryptocurrencies designed to maintain a stable value, often pegged to fiat currencies or assets. They provide a way of of transferring value on blockchain networks while minimizing price volatility.

“These factors weigh heavy on the uptick seen in Coinbase after its earnings release,” Rao said. 

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