Rethinking CONY As Coinbase Rallies – Tactical Use, Not Income Plan

Summary Coinbase’s recent momentum, Deribit acquisition, and regulatory clarity have strengthened its outlook, supporting a bullish-to-cautiously-bullish stance on the stock. CONY’s option income strategy consistently underperforms in flat or rallying markets, offering limited downside protection and capping upside potential. Tactically, CONY suits investors seeking cautious exposure to Coinbase or opportunistic short-term income, but direct COIN ownership offers higher potential returns. Given CONY’s structural flaws and risk profile, I maintain a Hold rating, with tactical use cases only for risk-tolerant, short-term investors. Since I last wrote on the YieldMax COIN Option Income Strategy ETF ( CONY ), Coinbase Global ( COIN ) has rallied by 95%. Coinbase has acquired Deribit , expanding into high-volume crypto derivatives. Coinbase’s payments launch has strengthened its non trading revenue. The crypto world is also starting to see clearer legislation like the GENIUS and Clarity Acts. A lot has happened, and Coinbase’s positioning now will have a lot of bearing on how CONY works out from here. In my last article, I had mainly talked about the structural deficiencies of CONY as a long-term market-agnostic income vehicle. It is a smoother alternative to owning Coinbase at best, and therefore Coinbase’s moves in the last couple of months make for a review of what to expect from CONY now. The Option Layer’s Workings A recap of the frailties of the option strategy and the alpha it brings. I have compared how CONY’s total returns (i.e., yields included and reinvested in CONY) have fared in almost one and a half years of net zero movement in the underlying – Coinbase. Remember, by definition, the strategy is theoretically supposed to capture the premiums, as income and total returns should be ideally higher than the underlying in this case. However, what we see is that CONY’s total returns are 9% down when overall Coinbase has been flat. That is the real-life alpha of the option layer. The net zero path of Coinbase has obviously been volatile, and so is expected. We cannot expect a really smooth flat market graph in which scenario CONY may outperform and deliver the alpha it is designed to deliver in flat markets. In fact, from my observations of other income ETFs’ behavior, I can tell you that even if the volatility has been in the case of CONY, you may see the drawdown a little better for CONY, but the elusive alpha is not usually seen, even if markets overall remain flat – CONY’s theoretically strong territory. Data by YCharts The upside cap is a feature of the strategy, not a bug, but I still highlight how Coinbase (or most underlying assets for that matter) will usually move up in sharp short bursts rather than a smooth, stable, slow-up move spread over months. In just 2-3 months, the gap in performance in CONY is huge. CONY investors may be led to believe in such markets that CONY is working, but it is Coinbase that has worked, and you have actually not captured the deserved upside for riding all the risks when it was down or flat. Data by YCharts So, CONY is acceptable in a rally in the underlying, but you may have ridden Coinbase for that with greater returns. Flat markets, we have seen how CONY underperforms in reality (but may match in some other era or Coinbase regime, but alpha is not easy). So, does CONY become the tactical asset for a correction? It does show a lower drawdown than Coinbase, but hardly by 4 percentage points over a two and a half month period. For those who are expecting the difference to be magnified proportionately if the fall is steeper, the fact is it won’t. The option strategy by design is great at capping upsides, as seen before, but the downside protection is limited to a fixed amount – that is, the premium earned per month – usually ~2% depending on the volatility levels. Data by YCharts Coinbase Fundamentals Clearly, I struggle to see why an income-seeking investor would not ride Coinbase instead of CONY, with almost all of the same risks, but pick up far less if Coinbase rallies. That leaves me only with potential tactical uses for CONY. Here again, its only use case is when a correction is due, where you might gain a few percentage points of outperformance in CONY. Flat markets are also not a stronghold for CONY. So where does Coinbase stand today? The momentum right now is very strong, and the rally may very well continue. Bitcoin has gained heavily (~25% since I last wrote about CONY and ~55% from the April lows). Record inflow into bitcoin ETFs has reduced bitcoin supply and pushed up prices. Below I have plotted IBIT AUM over IBIT prices to get an indicative bitcoin ownership explosion trajectory. A 25-30% jump in inflows is seen in the last 2-3 months alone. And there are other Bitcoin ETFs to account for far higher Bitcoin demand – enough to pressure supply and drive up prices further. Data by YCharts Bitcoin as a hedge is also supportive as equity markets await the next move after recovery from the April lows and another bout of tariff-related news. Importantly, the Clarity for Digital Tokens Act and GENIUS Act have clarified when a digital asset transitions from a security to a commodity, helping firms like Coinbase operate without fear of sudden SEC enforcements. These laws establish a clear path for token registration, exemption, and transition, reducing uncertainty for the Bitcoin ecosystem. In addition to the Bitcoin bullishness, Coinbase has added its own set of fundamental triggers that materially strengthen its position. Most notably, the Deribit acquisition, instantly becoming the global leader in crypto options, gaining access to over 80% of BTC and 94% of ETH options market share. This significantly expands Coinbase’s institutional derivatives offering and adds a high margin revenue stream. Coinbase has also launched its USDC-based payments platform, enabling stablecoin checkout for merchants via integrations with Shopify and Stripe. This moves Coinbase further into the infrastructure layer of global crypto payments and helps diversify revenue beyond trading. Analyst ratings also reflect the bullish view on Coinbase. Only 2 of 33 Wall Street ratings in the past 90 days have been a Sell (and only 1 in 14 from Seeking Alpha analysts ). The Seeking Alpha quant rating does show a more conservative Hold on the back of valuation concerns and earnings downgrades – probably cautious of the timing impact of the new developments’ adoption to the monetization cycle. I take that as an input to remain cautious (which is always the case with Coinbase), but remain fairly bullish on Coinbase tactically, as Coinbase is largely a momentum stock, and that remains in its favor until the trend breaks. Case for CONY With a bullish to cautiously bullish outlook for Coinbase, here is how CONY fits in tactically. Investors who are comfortable with owning Coinbase and have a fear of heights can use CONY now to ride a cautious bullish stance. If Coinbase rallies further, such positions will gain. Although such gains will be far lower than entering Coinbase directly, it is still better than not entering due to fear of heights. This is a use case I call handholding Coinbase entries. If there are corrections, investors can choose to enter Coinbase at 4-5% lower prices than they would have paid for now. A psychological edge – somewhat like a Wheel strategy. For more aggressive income-minded investors, comfortable with the risks of timing Coinbase rallies, entry now is tactically supported. This use case is what I call a low-touch opportunistic income strategy. Low touch because CONY’s high yields will re-risk exposure to the underlying fairly quickly, and investors do not need to look beyond 6-12 months to earn almost all their investments as yields. As long as they believe in the bullish Coinbase thesis for the tactical short term of 6–12 months, this play will return great yields that can be deployed elsewhere. However, it is risky. If it works, investors will completely de-risk themselves and still keep a small bit of invested capital on the table to ride Coinbase the CONY way. For conservative income-focused investors, the risks far outweigh the benefits. First there is a Coinbase thesis that needs to be bought into (not only equity risk but bitcoin and high volatile equity risk – the highest end of the spectrum). Then there are the structural shortcomings of the CONY strategy that need perfect scenarios to work out. I rate CONY still a Hold, but the Coinbase positioning now opens up a few tactical use cases for investors with a risk appetite.

Source: Seeking Alpha