A Crypto Downturn Could Crush Coinbase Stock

Coinbase Global stock (NASDAQ:COIN) has slid nearly 25% over the past month, now trading around $265. The decline has little to do with company-specific issues and everything to do with the sharp recent pullback in crypto markets. Bitcoin dropped from record highs above $120,000 in October to touching the low-$80,000s in November, and that downturn pushed Coinbase stock lower. With the stock now well off its recent peak, investors are asking the obvious question: is this the start of a recovery, or could more pressure be ahead?

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When markets turn, single-asset exposure hurts. Smart financial advisors protect client wealth by working with partners who allocate across multiple asset classes – including the High Quality (HQ) Portfolio.

What caused the crypto selloff?

• The trigger was a wave of forced deleveraging in the crypto markets, with traders who had borrowed heavily liquidating positions as prices dipped, and the automatic selling that followed accelerated the crash.
• Add in uncertainty over whether the Federal Reserve will cut rates in December, and risk assets—especially crypto—faced heavy pressure.
• In these environments,when Bitcoin sneezes, intermediaries like Coinbase catch more than a cold.

Why Is Coinbase so sensitive to crypto token prices?

• Coinbase runs a high fixed-cost model with volatile revenue—so when crypto prices fall, operating leverage works against the company. Transaction revenue shrinks immediately because trading fees are tied to dollar values.
• Retail investors, who tend to be highly sensitive to sentiment, also retreat and stop transacting, driving down the Monthly Transacting Users (MTU) metric.
• Institutional fees tied to Assets Under Custody fall when asset prices fall.
• And blockchain rewards revenue—the commission Coinbase earns on staking—gets hit as rewards are paid in tokens, and the dollar value of those tokens collapses during downturns.

How do the fundamentals look?

• The stock trades at a Price-to-Earnings Ratio of 23.5x roughly in line with the S&P 500, although its price to cash flow and revenue multiples are higher.
• The recent financials show a fundamentally stronger company than in prior cycles.
• Revenue growth has been impressive: roughly 23% annually over the past three years, and nearly 49% growth over the last twelve months, with total revenue climbing from about $4.7 billion to $7.0 billion.
• Operating income is running at nearly $2 billion with net income sits close to $3 billion with net margins above 40%. Cash generation is similarly strong.

Still, a crypto downturn could crash the stock

Investors need to be cautious, as the stock can fall far more than the crypto market itself during downturns. The 2022 inflation shock is the best example.

• Coinbase plunged more than 90%, versus a roughly 25% decline for the S&P 500.
• It took 911 days to fully recover, roughly twice as long as the index. That history is a reminder that the stock has deep cyclicality.
• In risk-off periods—when the Fed leans hawkish or liquidity gets tight—crypto activity dries up quickly, and valuation multiples compress just as revenue falls.
• Even today, despite a far stronger balance sheet and better operating discipline, the stock still trades with high beta to Bitcoin.
• If BTC were to slide materially below the current band, Coinbase could revisit lower levels, simply because transaction volumes and asset values would contract simultaneously.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

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