Coinbase rallied nearly 300% this year as cryptocurrency prices rebounded in anticipation of bitcoin ETF approvals and an improving regulatory outlook. However, a lack of retail crypto engagement is holding back the publicly-traded exchange. Needham expects the cryptocurrency frenzy to resume and hoisted its price target on Coinbase stock to $160 from $120 early Tuesday. Elsewhere, Cathie Wood and ARK Invest sold more than 10,000 shares of COIN stock on Monday.
Expectations for a bitcoin ETF, the halving of mining rewards and possible Federal Reserve interest rate cuts are the three catalysts driving Coinbase's recent gains, according to Needham analyst John Todaro. "What gave us confidence to raise our price target is that there remains a lot of capital still sidelined," he wrote in a comment to IBD.
Coinbase generates 90% of its revenue from retail transactions, which is highly correlated with crypto asset prices, according to a Dec. 5 research note from Todaro. But retail crypto engagement is considerably lower than in prior years and has been fairly muted despite recent price gains.
Retail Traders On The Sidelines
Current Google Search Trends show 'crypto' searches are at the same level as July 2023 and about half the levels of the 2022 average. Visits to crypto websites in October were lower than those in July. Meanwhile, Coinbase ranks 24th in app stores for finance apps, up from 28th in September 2023. Still, the ranking is much lower than its 9th place standing from February 2022 and Coinbase held the top spot among finance apps in October 2021.
Needham believes retail sentiment is the best indicator for where crypto and Coinbase are in their market cycle. "Disinterest" sentiment occurs closer to the bottom of the cycle while "euphoria" occurs closer to the top. Current measures of interest remain low and are closer to disinterested, according to Needham.
Meanwhile, bitcoin's dominance, or the percentage of the total crypto market cap that holds bitcoin, is still near bear market highs. Higher bitcoin dominance indicates excess capital has not flowed into alt coins or smaller cryptos, suggesting it is still in the "early innings" of the market cycle. Bitcoin dominance has so far increased since the start of 2023, which Todaro attributes to bitcoin ETF expectations and early-stage capital flows in crypto.
Coinbase Stock Valuation
Still, Needham expects Coinbase to benefit from improved competitive positioning and greater optimism toward the crypto industry, particularly given Binance's $4.3 billion settlement with the Department of Justice, "that did not feature an FTX-style collapse."
On Nov. 21, Binance agreed to an anti-money laundering settlement with the DOJ to resolve a yearslong probe that found the exchange failed to register as a money transmitting business and violated both the Bank Secrecy Act and International Emergency Economic Powers Act. As part of the settlement, CEO Changpeng 'CZ' Zhao resigned from his role and pleaded guilty to failing to maintain an effective anti-money laundering program. Zhao will personally pay a $50 million fine and faces up to an 18-month prison sentence. The Binance announcement comes after former FTX CEO Sam Bankman-Fried in early November was found guilty on seven criminal charges for his role in the 2022 collapse of the crypto exchange.
Needham believes that with a greater market share, Coinbase has additional pricing levers to offset transaction fee declines, which reinforces the firm's 2024 revenue estimates. Needham lifted its enterprise-value-to-revenue multiple (EV/R) expectation to 7.5x from 6x. EV/R compares a company's total value to its sales. The firm maintained a buy rating on Coinbase stock.
Cathie Wood, ARK Invest Sell Shares
Elsewhere, Cathie Wood's ARK Invest management firm sold 10,218 shares of Coinbase stock on Monday worth $1.44 million based on the 141.09 closing price.
ARK sold 7,248 shares from the flagship ARK Innovation ETF and 2,970 shares from the ARK Fintech Innovation ETF, according to daily trade updates.
Coinbase is still the top holding in ARKK as of Dec. 5, representing 11.95% of the total fund. COIN stock comprises 13.65% of ARKF, also the top holding in the fund.
Coinbase Stock
Coinbase stock eased slightly Tuesday. COIN stock is extended after a cup base breakout on Nov. 24. Shares vaulted 296% in 2023.
Bitcoin price climbed above $43,800 late Tuesday after briefly eclipsing its $44,000 level intraday, CoinDesk market data shows. The world's largest cryptocurrency rebounded 164% so far this year.
ARKK shares edged down 0.9% Tuesday. The stock is trading in a cup base with a 51.33 buy point.
ARKF stock added 0.2% Tuesday. Shares are in a buy range for a cup base. The current buy zone, which extends 5% beyond the buy point, stretches to 25.42.
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