Should you add Coinbase(Coin) in your portfolio?
Coinbase is a digital currency exchange headquartered in San Francisco, United States. It is currently the largest cryptocurrency exchange in the United States by trading volume. The exchanges product including Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Litecoin, Tezos, and other cryptocurrencies, with fiat currencies in approximately 32 countries and bitcoin transactions and storage in 190 countries worldwide. Its stock with the ticker COIN provides an opportunity for people to buy the company that highly correlated with cryptocurrency.
Coinbase has more than 35 million users, $25 billion of assets on the platform, and total crypto trading volume exceeding $320 billion as of December 2020. Its lastest valuation was more than $8 billion as of October 2018, when it raised $300 million in a Series E round led by Tiger Global Management. Speculators in 2020 estimated Coinbase to be valued at $20 billion at the time of its expected IPO in 2021. However, it hit a valuation of $77 billion in Feb, according to a report from Coindesk. The valuation was based on trades from the Nasdaq Private Market, with Coinbase hitting $303 per share.
Employing a direct listing method instead of launching an IPO, the company picked the Nasdaq exchange on the 14th of April. The choice was made due to the availability of the ticker symbol “COIN,” which wasn’t being offered by the New York Stock Exchange. The much-awaited stock opened at $381 in the afternoon of its direct listing and closed at $328.28 (14% down) after rising to an intra-day high of $410. At the end of the day, the company stood at a market cap of about $86 billion on a fully diluted basis.
Notably, Cathie Wood, founder of Ark Investment cut back on her investments in Tesla and used the proceeds to obtain shares of Coinbase. Her firm invested in 749,205 shares of Coinbase. Due to her fame and expertise, this choice further made the stock a concrete investment in the eyes of an average investor.
In the past few week, the stock was dealt a blow due to the fall in the Crypto market in which Bitcoin, Ethereum, Cardano, and most other notable cryptocurrencies suffered greatly. Consequently, Coinbase fell about 32% in value calculated from the day it was listed. On Apr 23, 2021, the stock tumbled to new lows and declined as low as 3.9% before paring losses to 0.6%.
Well, now that we’ve discussed the fundamentals I guess it’s time to start addressing the elephant in the room and discuss whether the stock is worth investing into? The answer to this question is essentially a strong debate where both sides have valid points.
Viewing Objectively, let us start by discussing some of the delicate areas of the stock. There are a few problems and causes of caution that the company needs to address and the investor needs to understand.
Firstly, there is the uncertainty that prevails regarding how the governments will regulate cryptocurrencies in general. The possibility of imposition of taxes and controls or embargos on international capital flows by the government exists. How the government decides to act can take the stock through the roof or beneath the ground.
Secondly, there is the risk of hacking that investors have to bear with them. In the past year, crypto’s worth billions of dollars were stolen from the wallets of investors by hackers. Although a decline in the frequency of hacks has been witnessed, the risk remains.
Thirdly, the source of the company’s revenue has sustainability concerns. Coinbase focuses and earns almost 90% of its revenue from trading commissions. Another related aspect to consider is the transaction fee it charges (0.46%) which is 46 times greater than the fee charged by Nasdaq and NYSE. If the company’s rivals such as Binance, Kraken, Gemini, etc were to reduce their commission’s charged on transactions. The Coinbase stock price could potentially plummet.
However, it is vital to also consider the fact that Coinbase is the first major U.S. cryptocurrency exchange to go public and could be a landmark victory in making cryptocurrencies more mainstream. As the public opinion currently holds Crypto’s are undeniably the future. They offer a variety of incentives to attract the financial services industry and are popular among them.
Now as the stock has tumbled to new lows on Apr 23, 2021 and declined as much as 3.9% before paring losses to 0.6%. So should you buy the stock at this attractive price? Well, all things considered. The stock is still immature and hasn’t been able to form a proper chart pattern for a graphical analysis to be conducted. First, a base needs to be formed for a buy point to be calculated.
In conclusion, the stock seems sketchy for value investors despite the low price. However, subject to the consolidation of Crypto prices which is expected to happen in future, it may experience a rise for at least a short while. The future, however, still uncertain.