NAIROBI (CoinChapter.com)— COIN stock, Coinbase Global Inc.’s ticker on Nasdaq, has drawn attention as a potential way for investors to gain exposure to the crypto market without directly buying Bitcoin. Since its debut in 2021, COIN has shown volatile performance, reflecting cryptocurrency market swings and Coinbase’s own structural changes. In this analysis, we explore whether Coinbase stock aligns with a passive Bitcoin investment strategy, looking at recent performance, earnings history, and business model transformations.
Understanding Coinbase’s Business Beyond Bitcoin
Coinbase, launched in 2012, initially offered a straightforward Bitcoin trading service before evolving into a publicly listed company in 2021. Today, the exchange generates revenue across a range of services, from traditional trading fees to staking and custodial services. More recently, Coinbase introduced Base, an Ethereum layer-2 solution, allowing users to perform low-fee transactions and enhancing Coinbase’s revenue diversification.
Will Clemente sets $1,700 target for Coinbase. Source: X
As Coinbase moved beyond being a simple exchange, analyst Will Clemente highlighted that the company has aimed to become a “crypto super app,” expanding its offerings to appeal to a broader user base. This shift could stabilize Coinbase’s revenue even in bear markets, potentially providing a more consistent earnings base. However, these ambitious pivots also come with risks, as Coinbase must manage operational complexity while facing strict regulatory scrutiny.
COIN Stock vs. Direct Bitcoin Exposure
For investors, COIN stock represents a markedly different risk profile than direct Bitcoin holdings. While Bitcoin’s price directly correlates with the cryptocurrency’s market demand and supply, COIN stock reflects Coinbase’s broader business performance and susceptibility to external factors, including U.S. regulatory developments and market sentiment.
Historically, COIN’s price has tracked Bitcoin, with significant price volatility during crypto market cycles. This correlation was evident in early 2023, when COIN surged over 300% from its lows as Bitcoin rebounded. Nonetheless, COIN’s trajectory also diverges based on Coinbase’s operational performance. For instance, COIN has seen both gains and losses due to institutional trading volumes, platform innovations, and even regulatory inquiries. Thus, investing in COIN is less about Bitcoin price speculation and more a bet on Coinbase’s ability to navigate crypto’s complexities.
During bull markets, Coinbase’s revenue tends to increase alongside rising trading volumes. In contrast, bearish conditions often result in declines, as seen in the crypto winter of 2022.
Can COIN Deliver Consistent Returns?
Coinbase’s earnings report reveals the ebb and flow of its financial performance. The company’s revenue has shown extreme highs and lows, often tied to crypto market performance. In Q1 2024, Coinbase reported earnings of $1.15 per share on revenue of $4.40 billion, a stark contrast to the $1.04 billion reported in Q4 2023. These fluctuations indicate the firm’s revenue sensitivity to Bitcoin and other digital asset prices. Coinbase’s earnings history underscores this volatility, showing profits during bull markets but declines during downturns.
Coinbase Global, Inc. files Q2 2024 Form 10-Q. Source: Coinbase
The company has reduced its dependence on transaction fees, which comprised 90% of its revenue in 2022 but only 56% as of Q2 2024. Coinbase’s Q2 revenue reached $781 million from transaction fees and $599 million from subscription and service revenue, reflecting the impact of its strategic diversification. Additionally, Coinbase’s free cash flow hit $1.2 billion over the last 12 months, an improvement from $923 million in 2023, underscoring its resilience through cost-cutting and revenue expansion.
Coinbase Q3 2024 earnings reveal $1.2B revenue. Source: Share Holder letter
Despite this progress, analysts are divided. Seven recommend a “strong buy,” one suggests a “moderate buy,” while 13 rate COIN as a “hold.” These ratings indicate caution around Coinbase’s ability to deliver consistent returns. The volatility of trading volumes and crypto prices often dictates earnings unpredictably. COIN may appeal to those with a high-risk tolerance, but it diverges from the passive income expectations associated with traditional investments or Bitcoin ETFs.
Factors Impacting COIN Stock
COIN stock is highly volatile. Its performance reflects broader crypto market trends. While COIN’s price often mirrors Bitcoin, it faces unique pressures from institutional sentiment. Notably, ARK Invest, led by Cathie Wood, has been an active trader in COIN, frequently adjusting its holdings based on market conditions. In early 2024, ARK’s sale of COIN stock raised questions about institutional confidence in Coinbase’s growth trajectory.
Some analysts see COIN as an innovative tech stock with high growth potential, akin to early Tesla investments. Others approach COIN cautiously due to Coinbase’s earnings volatility, especially during bearish market phases. For instance, COIN is currently trading at approximately $216, with a market cap of $54 billion, and has seen year-to-date growth of 37.75%, despite a 36.81% drop over five years.
In Sept. 2024, COIN faced a steep decline of nearly 16% within five days, partially attributed to market-wide crypto volatility. However, according to analyst Will Clemente, institutional investors may overlook Coinbase’s potential, particularly regarding Base, which has recorded substantial growth and revenue through sequencer fees. The total value locked on Base has reached $5.35 billion, with daily transactions exceeding 30 per second. This high volume positions Base as a valuable revenue source, though traditional investors may be underestimating its impact.
Is COIN Stock a Good Passive Bitcoin Investment?
For investors seeking passive exposure to Bitcoin, COIN stock also offers an indirect route with additional layers of diversification across the broader crypto ecosystem. While COIN’s correlation with Bitcoin provides a form of crypto exposure, Coinbase’s revenue diversification and regulatory challenges introduce complexities that a direct Bitcoin holding or a Bitcoin ETF does not face.
Ultimately, COIN stock is more aligned with a venture-style investment. Like Tesla in its early stages, Coinbase presents high-reward potential but also involves high risk. With a forward price-to-earnings ratio of 35.6, COIN stock may appear costly, but analysts maintain mixed views on its valuation. Out of 22 analysts covering COIN, seven recommend a “strong buy,” while 13 rate it as “hold.”
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