As the cryptocurrency industry grows and becomes an increasingly important part of the global financial landscape, I am looking for shares to buy with exposure to the industry. Argo Blockchain (LSE: ARB) shares are one of the most high-profile investments in the crypto sector here in the UK.
However, considering this is a global industry, I have also been looking overseas. That is why I have been running the rule over Coinbase (NASDAQ: COIN) shares as well.
Both of these companies operate in different sectors of the crypto industry. Argo is a cryptocurrency miner. Meanwhile, Coinbase primarily acts as an exchange.
The qualities of Coinbase shares
There are benefits and drawbacks to both of these sectors. Mining cryptocurrency requires a large amount of upfront investment, but it can be highly profitable. Unfortunately, miners are also exposed to crypto prices.
For example, as a Bitcoin miner, Argo’s revenues and profits can rise or fall in line with the cryptocurrency’s price. As the company also has fixed costs to cover, its profit margins can be challenging to predict.
On the other hand, as an exchange, Coinbase can set the profit margin it earns from clients. It has little exposure to volatile crypto prices, as traders will always have to pay a fee to transact on its exchange. The company can set its fees not just for trading but for withdrawals and fiat currency conversions as well. This is why the group’s operating profit margin is 44%. Argo’s operating profit margin was 35% for the first half of 2021.
Despite Coinbase’s profit advantage, I think it is essential to acknowledge that Argo’s mining operations fulfil an integral part of the crypto ecosystem. Put simply, mining is the process of confirming transactions on the Bitcoin blockchain network. Without it, the system does not work.
I think there will always be a place for the company in the crypto landscape, but there will also be a need for trading facilities.
Argo Blockchain weaknesses
That is why if I had to choose between Argo and Coinbase, I would buy the latter. I am not only attracted to its fat profit margins, but also reputation. Coinbase has a global reputation as a trustworthy cryptocurrency exchange. This is a robust competitive advantage.
On the other hand, barriers to entry in the mining industry are much lower. Few investors care if it is Argo’s network or another firm mining the crypto asset.
Still, these shares are not going to be suitable for all investors. Cryptocurrency can be a volatile asset class, which many investors may struggle to deal with. It also lacks the regulatory protections offered with other investments. Once again, some investors may not feel comfortable with this type of exposure.
Still, I am comfortable with the risks involved. That is why I would buy Coinbase shares over Argo, although, given the chance, I would be happy to purchase a speculative position in the latter as well.
The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Bitcoin. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.