Author: Jack Inabinet, Bankless; Translated by: Wuzhu, Golden Finance

Coinbase stock has long been a go-to for investors seeking exposure to cryptocurrencies through ownership of a public company, but another company is increasingly vying for that crown…

Last Thursday, Robinhood announced that it would double down on cryptocurrencies with the $200 million acquisition of Bitstamp, the oldest active cryptocurrency exchange in existence with active licenses to operate in over 50 countries!

Should you buy COIN or HOOD stock?

Today, we’ll explore the differences between Coinbase and Robinhood to understand why investors are bullish on both stocks.

Why are you optimistic about COIN?

Coinbase is often considered the most reputable cryptocurrency exchange, a distinction that has enabled it to forge deep connections with both U.S. retail and institutional crypto enthusiasts over its 12-year history.

Centralized cryptocurrency exchanges typically provide limited insights into their financial status; however, as a public company listed on a U.S. stock exchange, Coinbase is required to undergo rigorous audits and submit corresponding reports to the SEC, thereby reducing the possibility of customer funds being misappropriated.

While the most familiar function of any exchange is the trading functionality, Coinbase is more than just a simple marketplace; the company is a pioneer in on-chain CEXs and has played a major role in infrastructure development, launching its own wallet and Ethereum L2 Base!

Since the implementation of EIP-4844 in Ethereum’s Dencun upgrade in March, the cost of publishing data on L2 has dropped significantly, Base’s on-chain operating profit margin has increased to almost 100%, and almost every penny of transaction fees can be directly remitted to Coinbase’s treasury.

While Base’s revenue has dropped significantly from the peak of congestion in late March, the network is the second-largest L2 by TVL and generates more profit than any other major L2, often making more than $100,000 in net profit per day, according to L2BEAT’s calculations.

In addition to on-chain infrastructure, Coinbase also provides users with comprehensive custody tools, providing white glove staking services (as well as ETH liquidity staking tokens) in addition to institutional-grade custody solutions.

Coinbase Custody is widely regarded as the preeminent digital asset custody provider and services eight of the 11 U.S. spot BTC ETFs, including Grayscale’s GBTC and BlackRock’s IBIT (the two largest such products in terms of assets under management). This arrangement enables Coinbase to earn custody fees on the assets it manages, as well as trading fees on creation and redemption, which will provide a strong revenue driver for the company if spot crypto ETFs continue to gain traction among traditional market participants.

Crypto payments have yet to achieve mainstream adoption, but the Coinbase team has developed the infrastructure needed to make this happen through its Commerce platform, which enables merchants to accept hundreds of crypto assets as payment for goods and services directly into their self-custodial crypto wallets.

The public’s further willingness to hold crypto assets and recognition of the benefits of self-custody technology will benefit Coinbase in generating revenue from the platform.

Coinbase also caters to international users who are not bound by U.S. financial regulation, and they can access futures on various crypto assets through the exchange; these services could easily expand to the U.S. platform — which currently only offers BTC and ETH futures — if the crypto industry gains positive regulatory clarity.

As an added side benefit, holders of COIN shares can receive a small upside from the success of the Coinbase Ventures portfolio, which contains many lucrative private market opportunities that are unavailable to retail and outside investors.

Why are you optimistic about HOOD?

While Coinbase is ahead of Robinhood in terms of crypto trading volume processed, Robinhood remains the undisputed champion for U.S. retail traders.

Despite having fewer assets managed on Robinhood’s platform than Coinbase (even when the former’s stock, options, cash, and cryptocurrency balances are added together), it had 70% more monthly active users than Coinbase in the first quarter of 2024, highlighting the exchange’s popularity among retail traders.

Admittedly, Robinhood’s biggest advantage is regulatory compliance; the exchange is regulated as a broker by the U.S. Securities and Exchange Commission (SEC), and if a new classification of digital asset securities falls within the agency’s purview and their trading is restricted to registered brokers, then Robinhood is well positioned to become the dominant cryptocurrency exchange.

While Coinbase is clearly the more crypto-native company and has attracted a slew of well-connected talent in the industry, there’s nothing stopping Robinhood (other than regulatory uncertainty) from creating its own cryptocurrency app.

Robinhood has developed its own proprietary non-custodial wallet solution and recently launched an integration that enables users to purchase crypto directly from the Uniswap mobile app using funds from their Robinhood Connect account!

With its proposed acquisition of Bitstamp, which could still be rejected by regulators, Robinhood acknowledged the growth potential of its cryptocurrency business, despite its ongoing legal battle with the U.S. Securities and Exchange Commission (SEC) over its cryptocurrency business, and confirmed that it will do everything it can to get involved with blockchain technology.

Bitstamp’s 4 million active users are primarily based in Europe — a highly desirable demographic for a U.S.-centric buyer — and the acquisition involves moving Bitstamp’s core products for staking and lending, allowing Robinhood to better compete with the service offerings of crypto CEXs and highlighting that it can simply buy crypto technology developed by others to catch up with crypto-native competitors.

Summarize

For cryptocurrency investors who are already bullish on COIN, it would be easy to have similar confidence in HOOD, as the company appears to be aggressively moving into the cryptocurrency market and has already won over U.S. retail investors, who are highly likely to enter the cryptocurrency space if the industry experiences another frenzy given the easy purchasing/custody solutions available.

On the other hand, Coinbase has a proven track record of cryptocurrency performance and benefits from significant institutional adoption, as evidenced by the preference for its services among spot cryptocurrency ETF issuers.

Both publicly traded exchanges have their own unique strengths and weaknesses, and while Robinhood is currently at a disadvantage in this race, Coinbase’s dominance is by no means certain, especially in the face of tighter crypto financial regulation in the future.