Coinbase made its grand debut just a few weeks ago, and is currently hovering around $300 at this time of writing. Purchase of this stock is being considered as a way to get crypto exposure with slightly less risk. Personally, however, I feel like this probably isn't a wise decision. Namely due to the point that while Coinbase is probably going to be less volatile than Bitcoin, and will limit upside, I don't think it will protect you from volatility when crypto is falling. At least, until a certain point.
Limited upside, lots of potential downside
Many stocks have enjoyed a lot of upside from the crypto market bubble. Nvidia in 2017. Microstrategy just this year. However, these stocks generally take a huge beating when the crypto market goes through one of its routine corrections, and often struggle to get back up afterwards. A correction in the crypto market a few months ago led to microstrategy faring far worse, as you will see in the chart below.
Also, Coinbase is probably more sensitive to greater stock market movements than crypto. While it can be a bit of a guessing game for crypto (sometimes crypto dumps with stocks, sometimes it stays put, sometimes it even churns out gains,) Coinbase almost for sure will be correlated with the greater stock market. This can hold Coinbase back even as the crypto market is flying.
A look at MSTR
Microstrategy (MSTR) is probably the best analog we have for now to see how crypto-exposed stocks respond to movements in the markets.
MSTR is the candles, BTCUSD in orange
As we can see, at one point Microstrategy was actually outperforming Bitcoin, before being dragged back down to earth during a correction. Microstrategy is not exactly a large-cap stock, so the upside and volatility was already potentially quite high. Not only that, but it has been unable to break out of this (somewhat bearish) consolidation pattern despite the crypto market making new highs. Can we expect similar movement from Coinbase?
Regarding risk
It looks like if protecting yourself against greater crypto volatility is what you want, this certainly didn't happen in the case of MSTR.
My biggest issue with Coinbase is that its upside could be limited due to the large capitalisation and lack of volatility - and any undesirable behaviour during and after crypto corrections. After taking a huge 30-50% drop due to crypto doing one of its routine 30-40% corrections, would Coinbase be able to take new highs and keep up with crypto afterwards? I somewhat doubt it. I think this would hold back Coinbase and make it underperform the crypto market while still being risky in case of a correction.
Fundamentals have a bigger pull on stocks than crypto
Generally speaking, although we see a lot of talk about fundamentals in crypto, it works much more like a cyclical bubble. Therefore crypto is a lot less sensitive to issues in "crypto fundamentals." Unless something very big happens, like the SEC banning Bitcoin, not many outside forces can affect the crypto market when it's on a rampage. Although we may see temporary corrections, it will keep marching on. Even when China banned Bitcoin trading in 2017, it still went on to break to new highs for many months afterwards.
In the case of Coinbase, however, "fundamental analysis" is another force that affects the stock price. Earnings quarter will always bring turbulence. Hypothetically, crypto going higher would lead to greater profits for Coinbase right? In most cases, yes, but then there'll be punters questioning whether it's sustainable, what the expectations are for growth, the next year, etc. Even an incredible quarter can lead to losses in a stock if people don't see any growth further down the road. Larger market participants are probably not expecting Coinbase's growth to be sustainable in the slightest, knowing already that a wider bear market in crypto would bring Coinbase's YoY earnings to much lower levels.
Coinbase may be a better bet for safety during a crypto bear market
This is just a guess, but Coinbase is likely to still churn out profits even when crypto is in a bear market. The stock will likely take a steep drop, but it will probably outperform crypto during a bear market. Crypto can easily take a 90%+ loss during a bear market, but Coinbase would probably fare better, with profits still coming in regardless of what price Bitcoin is at. Therefore, if you want to get exposure to crypto during those relenting crypto winters, COIN wouldn't be a bad bet, and the downside would be more limited compared to crypto.
IMHO, Just buy Bitcoin directly
We won't really know how Coinbase reacts to a crypto market correction until we see one. After that, we can make a more clear case to see whether or not Coinbase would actually give you a less risky exposure to crypto. But for now, I would just invest in crypto directly. For those who are risk averse, it's a good idea just to simply buy a bit of Bitcoin. You can then hedge your bets with options strategies using the deribit exchange, which allows you to trade Bitcoin options.