Coinbase stock is more than just a crypto exchange for bitcoin believers.
"Coinbase is basically the largest venture-style bet in public markets since Tesla," Will Clemente, founder of Reflexivity Research, told Investor's Business Daily's "Investing with IBD" podcast. "There's a fundamental misunderstanding between Wall Street and crypto-native revenue vertices that the business has, that some of the crypto-native guys understand."
Coinbase remains at its core a crypto exchange. The company maintains a platform that can be used to invest in and trade crypto between retail traders and institutions. Coinbase stock remains turbulent but above its profit zone, gaining more than 7% during Thursday's trading, according to MarketSurge. Since February 2023, Coinbase stock has seen several technical chart patterns form consecutively, beginning with a 22-week consolidation period that ended in July.
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This was followed by two nearly back-to-back cup patterns: a 18-week cup that began in July and ended in November last year, and a seven-week cup that began late last year and ended in February.
Coinbase stock is ranked first in the Computer Software Financial Group and maintains a Composite Rating of 99, according to IBD Research. The stock flashed a buy signal last week after securing rights to operate in Canada.
Staking Revenues Set Up Coinbase Stock
But Clemente says Coinbase stock has another ace up its sleeve: crypto staking.
"Coinbase has basically been viewed as just a pure exchange, where the majority of the revenue they generate is from fees on the platform," said Clemente. He expects revenue from other lines of business, like staking, to rise over time.
Staking is a function used by certain cryptocurrencies, including ethereum, that ensures all transactions using the crypto are valid. An ethereum user stakes some crypto to become a validator, recording transactions in a process called proof-of-stake. The validators are rewarded with crypto in exchange for the tokens locked away through staking.
The process acts as a fraud deterrent. For instance, staking is expected to prevent the same coin from being used in two separate transactions. Bitcoin, notably, does not include a function for staking cryptocurrency, instead using a proof-of-work method called "mining." Bitcoin miners verify transactions across the bitcoin network, creating a block that's added to a chain of previous transactions and creating a bitcoin. Ethereum was later designed to use staking to handle more complex functions on its blockchain.
Coinbase Stock's Crypto-Specific Scalability
Coinbase's significant userbase also gives it advantages in scalability compared to its competitors, Clemente says. "They have the largest distribution of almost any entity in the entire crypto space," he said.
That user base can be leveraged in novel ways. Coinbase offers a Layer 2 blockchain network called Base which allows crypto transactions to be dramatically scaled. The scaling solution uses ethereum's Layer 2 scaling solution to embed multiple complex transactions into a single block. That block can be added into an existing Layer 1 (or base layer) ethereum or bitcoin blockchain. For Coinbase stock's growth, having a large userbase means being able to support a larger Layer 2 network.
"We're now up to $30 million in revenue that's generated on sequencer fees, which is basically Coinbase batching the transactions together before they're settled down (blocked) on the ethereum Layer 1," said Clemente.
"The street has been viewing (Coinbase) as just a pure exchange," said Clemente. "I think this is a great example of how there's different aspects of Coinbase's business which basically makes this a crypto super-app."
Watch this week's podcast featuring Will Clemente to learn more about how to play bitcoin's halving.
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