With Declining Crypto Prices And Mounting Competition, What’s Next For Coinbase?

COIN: Coinbase Global logo
COIN
Coinbase Global

Cryptocurrency exchange Coinbase stock (NASDAQ: COIN) has declined by close to 27% over the past month after seeing a strong recovery through the month of July, although the stock still remains down by about 74% year-to-date. The recent sell-off comes as crypto prices have declined once again with the Federal Reserve indicating that it would continue on its path of interest rate hikes, despite a slight slowdown in inflation. Crypto bellwether bitcoin fell by close to 12% over the last month and remains down by 55% year-to-date. Declining prices typically curtail crypto trading activity on platforms such as Coinbase. Over Q2 2022, the trading volumes on the company’s platform fell by almost 54% to $217 billion, while revenue declined by 64% year-over-year to $808 million. Moreover, competition is also mounting just as the market is in a downcycle. While Coinbase has focused more on retail traders, who have moved to the sidelines through the crypto crash, rival offshore platforms have attracted more volumes from larger traders. For perspective, Coinbase’s market share fell to 6.3% in July 2022 down from 10.7% in January, per data from CryptoCompare.

While it’s hard to time an entry into Coinbase stock amid the market volatility, some factors are worth considering for potential investors. Things are likely to remain tricky for non-productive assets such as crypto, as the Fed continues its monetary tightening. However, cryptocurrencies such as bitcoin have shown resilience in the past, bouncing back stronger after big sell-offs. We could see this again as the crypto cycle turns (typically two to four years, according to Coinbase). As a company, Coinbase has shown potential for extraordinary profits during good times. Over 2021, the company’s total profits stood at $3.6 billion on revenues of about $7.4 billion. This could make the stock worth a look during the current downturn.

Moreover, through the current crypto bear market, several smaller platforms such as Celsius and Voyager Digital have filed for bankruptcy, while suspending account withdrawals. These developments might help more established and well-capitalized players such as Coinbase eventually win over more retail investors, as things get better. There could be some upside for Coinbase in the near-term as well.  Ethereum – the second largest cryptocurrency by market cap – is likely to see a big network overhaul in the coming weeks.  This is expected to open up additional commission-related revenue streams for the likes of Coinbase, which is one of the largest players in the Ethereum trading space.

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We value Coinbase stock at $120 per share, which is significantly ahead of the current market price of $71 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.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Sep 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 COIN Return -2% -74% -81%
 S&P 500 Return -1% -18% 75%
 Trefis Multi-Strategy Portfolio -2% -17% 228%

[1] Month-to-date and year-to-date as of 9/5/2022
[2] Cumulative total returns since the end of 2016

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