Cryptocurrency exchange Coinbase stock (NASDAQ: COIN) has declined by almost 80% year to date in 2022 and remains down by almost 85% from all-time highs seen in November 2021, trading at levels of around $75 per share. The crypto exchange has underperformed the broader S&P 500, which is down by around 22%. With the Fed raising rates at a faster than anticipated pace to fight surging inflation, investors are moving out of risky, non-yielding assets such as cryptocurrency. For perspective, the bellwether cryptocurrency Bitcoin is now down by 74% from its record high in November, trading at about $19,000 as of Sunday. Lower cryptocurrency prices typically translate into lower transaction volumes and impact active user numbers for exchanges such as Coinbase. Growth stocks, in general, have also taken a beating, amid concerns about a potential recession in the U.S. The downcycle is reflecting on Coinbase’s finances, over Q1 2022, the most recent reported quarter, the company saw retail monthly transacting users fall 20% year-over-year to 9.2 million, with total trading volume declining 45% to $309 billion. Things are likely to get much worse over the second quarter as the full impact of the decline in cryptocurrencies is felt.
So, is it time to buy Coinbase stock following this big sell-off? While it’s hard to time an entry into the stock amid the market volatility, there are some factors worth considering for potential investors. The going clearly is likely to remain tough for the company in the near to medium term, as crypto prices could remain depressed through the Fed’s monetary tightening, which will almost certainly impact activity on the company’s platform further. That said, Coinbase also has ample liquidity to ride out a downcycle, with its cash and cash equivalents at the end of Q1 2022 standing at $6.1 billion. It’s also very likely that the downtrend in crypto prices will eventually reverse. Bitcoin is seen as one of the most innovative technologies of our times, and as an asset it has shown resilience in the past, bouncing back stronger after big sell-offs. Although it is hard to say exactly how long a recovery will take, Coinbase has previously indicated the crypto cycle typically lasts from two to four years. Coinbase should be a big beneficiary as things eventually turn for the better, considering that it is the market leader in the cryptocurrency space. Coinbase has also shown potential for extraordinary profits during good times. Over 2021, the company’s total profits stood at $3.6 billion on revenues of just about $7.4 billion. These factors could make the risk-to-reward positioning of the stock attractive, versus historical levels.
We value Coinbase stock at $150 per share, which is significantly ahead of the current market price of $55 per share. See our analysis on Coinbase Valuation: Expensive or Cheap? for more details on Coinbase’s valuation. Also, check out our analysis on Coinbase Revenues: How Does COIN Make Money? for details on the company’s key revenue streams and how they have been trending.
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|S&P 500 Return||0%||-22%||84%|
|Trefis Multi-Strategy Portfolio||-10%||-27%||190%|
 Month-to-date and year-to-date as of 6/20/2022
 Cumulative total returns since the end of 2016