Shares of Coinbase (COIN) have been on an absolute tear recently. The stock has more than doubled from its June lows, bringing COIN's year-to-date gain to a market-beating 156%.
Despite this breakout price action, Coinbase stock still trades 79% below its April 2021 all-time high, and 22.6% beneath its 52-week high.
Coinbase is the second largest cryptocurrency exchange globally, based on trading volumes. Like other trading platforms, Coinbase earns most of its sales from commissions and fees.
Generally speaking, in a bull run for cryptocurrencies, trading volumes will be higher as investors grow more optimistic and take on greater risk. The increased transaction volume translates into more commissions and fees for Coinbase. Alternatively, when investor sentiment toward the underlying cryptocurrency market turns bearish, trading volumes often decline, as well, which can lead to lighter sales numbers for the exchange operator.
For instance, Coinbase increased sales from $1.27 billion in 2020 to $7.8 billion in 2021, keeping pace with an explosive bull market for cryptocurrency. However, as the prices of Bitcoin and other cryptocurrencies fell from those late 2021 all-time highs, so did Coinbase - and the company reported much softer revenue of $3.19 billion in 2022.
Along with the daily ups and downs of major cryptocurrency prices, several other factors seem likely to impact the share price of Coinbase in the near term. Let's see whether the stock is on track to extend its rally through the rest of the summer and beyond.
Coinbase and the SEC
In June 2023, the Securities and Exchange Commission (SEC) accused Coinbase of operating an unregistered exchange, and further claimed the company was offering unregistered securities as part of its staking services. In response, Coinbase said the SEC's crackdown on crypto trading platforms will negatively impact competition - and argued that the SEC may well be outside its jurisdiction in attempting to regulate the industry, anyway.
Notably, new reports indicate that the SEC recommended Coinbase delist all assets except Bitcoin prior to bringing its legal action, which suggests the agency views every crypto token except Bitcoin as within its purview.
The Expanding Crypto Ecosystem
Over the years, Coinbase has arguably democratized retail access to Bitcoin and other digital assets. It has played a crucial role in developing and strengthening the crypto markets, and aims to onboard 1 billion crypto users over time.
Going forward, a critical driver of Bitcoin's price will be the widespread adoption of this digital asset. Coinbase recently partnered with BlackRock (BLK), the world's largest asset manager, to provide Aladdin's institutional clients with crypto access. Aladdin is BlackRock's investment management platform, the users of which will gain exposure to cryptocurrencies via Coinbase Prime.
BlackRock and multiple other asset managers have also applied to launch spot Bitcoin ETFs - which could attract billions of dollars in new investments, potentially driving bitcoin (BTC)(BTCUSD) prices to new all-time highs.
Coinbase Stock and Bitcoin
As stated above, the performance of Coinbase stock is closely tied to BTC prices. According to the stock-to-flow (S2F) model, Bitcoin prices may surge over $400,000 by 2025, indicating an upside potential of over 1,00% from current prices.
The S2F multiple has been used to value gold and other precious metals. Here, the stock is the total existing supply of a commodity, and flow is the additional supply that is added. Bitcoin is deflationary by nature, as only a finite supply exist to be mined. Moreover, the BTC supply is reduced by 50% every four years. Historically, each halving event has acted as a catalyst for BTC prices.
In an interview with CNBC, Tom Lee, the managing director of Fundstrat, stated if the BlackRock ETF is launched, BTC prices may surge to $200,000 before the next halving event in April 2024.
Coinbase Builds a Bigger Moat
Coinbase continues to diversify its revenue base, as transaction sales accounted for 50.8% of total revenue in Q1, down from 87% in the year-ago period. While transaction revenue was down 58% year over year in Q1, subscription sales rose 140% to $362 million in the March quarter. This business segment generates revenue from blockchain rewards, interest income, and custodial fees.
Coinbase is focused on expanding into other international markets, as well. Its platform is available in 34 countries, including Singapore, India, and Brazil.
Valued at a market cap of $23 billion, its market leadership provides Coinbase with an economic moat, while its expanding portfolio of products and services should result in strong customer retention rates.
What is the Price Prediction for COIN Stock?
Taken as a whole, Wall Street Analysts rate COIN a “hold.” Out of the 23 analysts covering Coinbase stock, six recommend a "strong buy," one recommends a "moderate buy," eight recommend "hold," two recommend a "moderate sell,” and six have "strong sell" recommendations. The average price target for Coinbase stock is $72.50, almost 30% lower than its current trading price.
What's Next for Coinbase Stock?
Though Coinbase is one of the largest cryptocurrency exchanges in the world, with over 100 million users, has a strong brand and a dominant market share, and the company is profitable, I believe investors should sell Coinbase stock.
The cryptocurrency market is volatile, and Coinbase's revenue is directly correlated with the price of Bitcoin and other cryptocurrencies. If the crypto market declines, Coinbase's profits could suffer.
The company's valuation is based on the assumption that the crypto market will continue to grow at a rapid pace. However, there is no guarantee that this will happen, and there are risks to the crypto market that could hurt Coinbase's business. Such as the regulatory environment for cryptocurrencies, which is still evolving. Case in point is the significant risk that the SEC's recent lawsuit presents and potential new regulations which could hurt Coinbase's business.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
