You could feel the excitement in the air when popular cryptocurrency trading platform Coinbase Global (NASDAQ:COIN) revealed that it would go public via a direct listing or direct public offering (DPO) on April 14. At that time, people were ready to dive into Coinbase stock.
Source: Nadezda Murmakova / Shutterstock.com
I was watching intently when the shares started trading on the Nasdaq. People on social media were buzzing, as if this was destined to be the most important stock debut of the year.
That story is still being written, but so far, Coinbase stock hasn’t wowed Wall Street. And unfortunately, some retail traders are probably “holding the bag” right now.
And now, the analysts are weighing in — and their assessments aren’t super optimistic. I’ll provide more details on that, but first, let’s delve into a little bit of technical analysis.
A Closer Look at Coinbase Stock
The direct listing of Coinbase stock took place on April 14, with a starting price of $250 per share.
I was watching practically every tick as the stock price almost immediately went above $300 after the opening bell rang that day. For the vast majority of retail traders, getting the shares at $250 would have been impossible.
Amazingly, the Coinbase stock price increased by nearly 72% to $429.54 at one point during that first day of public trading.
That price couldn’t be sustained, though, and the stock closed at $328.28. That’s up 31.3% from $250, but many amateur traders probably lost money that day.
By the end of April, Coinbase stock had declined to $297.64. And at close on May 7, the shares were trading at $263.70.
Not long ago, I implored prospective investors to be aware of the risks. I’m sticking to that stance, and there are specific reasons for my wariness.
The ‘Specter’ of Downward Pressure
I wouldn’t usually recommend avoiding a stock just because some analysts are striking a less-than-optimistic tone.
On the other hand, if Wall Street has a good reason to be hesitant, then the analysts’ opinions are worth considering.
One example would be Mizuho Securities’ Dan Dolev, who said that he’s “’cautious’ on the medium term outlook” for Coinbase. Dolev assigned a “neutral” rating on the stock along with a price target of $315.
Meanwhile, Bernstein Research’s Harshita Rawat initiated coverage with a “market perform” rating and a $250 price target.
Moreover, Keefe, Bruyette & Woods analyst Kyle Voigt issued a “hold” rating and a price target of $325.
Those lukewarm ratings and unambitious price targets stand in stark contrast to the initial burst of enthusiasm surrounding Coinbase stock.
For one analyst, at least, there’s a potential issue related to increasing competition in the cryptocurrency trading platform niche.
“With over 80% of total revenue reliant on retail transaction fees, significant user overlap with PayPal and Square’s Cash App, and high user sensitivity to transaction fees, the specter of downward pressure on commissions is a concern,” Dolev explains.
Beware the Regulators
Dolev’s concern is duly noted. Coinbase isn’t exactly known for low transaction commissions.
And the platform’s over-reliance on commissions could eventually weigh on the company’s bottom line.
In case that isn’t problematic enough, there’s also the “specter” (to recycle Dolev’s phrasing) of a regulatory crackdown on cryptocurrency exchanges.
U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler recently made comments that may hint at a ramp-up in regulatory oversight.
It doesn’t take a market maven to read between Gensler’s lines:
“Right now the exchanges trading in these crypto assets do not have a regulatory framework … That could instill greater confidence. Right now there’s not a market regulator around these crypto exchanges. And thus there’s really not protection against fraud or manipulation.”
I’m no Nostradamus, but I can see where Gensler’s headed with this line of thought. Tougher regulations and enforcement for crypto trading platforms like Coinbase could be enacted in the near future.
The Bottom Line
If you’re holding the bag on Coinbase stock today, there’s no question that you’re in a tough position. You might get to break even, but patience will be required.
And if you’re thinking about buying the shares now, please be aware of the risks. The analysts aren’t always right, but their caution seems justified in this case.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content — and crossed the occasional line — on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.