The debate around cryptocurrency is always hot. Opinions are binary between haters and absolute lovers. But there is a giant portion of the population apathetic about the whole thing. Those are the future upside feeders to Coinbase (NASDAQ:COIN) and COIN stock.
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Many of my family members are in that group. They simply ignore me when I bring up the subject. They still believe that Bitcoin (CCC:BTC-USD) is fake, and they cannot accept its price. Today’s opportunity in COIN stock revolves heavily around the opportunity in cryptocurrency.
Therefore, we should start there and say that the name needs to change.
COIN Stock and its Business Model
Crypto is not a currency, nor does it need to be one. Gold isn’t, yet it is an acceptable investment asset vehicle. We should not ask of Bitcoin to be a currency.
Headlines of companies accepting Bitcoin for payment make for good headlines but not much sense yet. Maybe in the future. For now, crypto is an investment class.
The coins have value because enough people believe in them, end of story! My opinion of it has nothing to do with its value. Gold was a yellow rock until one person convinced enough people otherwise.
The crypto doubts should end there.
Until all the fans disappear, Coinbase will have an opportunity in its business model. The success of COIN stock shows it is tied to our interest in crypto and the momentum is too strong. This is more likely the start rather than the ending of that era.
BTC Value Affects Coinbase Shares
Source: Charts by TradingView
BTC is now trying to defend the $30,000 mark. It has held of late with a quick dip to $28,800. If that fails, crypto will risk a big dip that could raise eyebrows. However, it will be an opportunity to invest in it.
I mention this because a similar situation is brewing in COIN stock. It’s stumbled hard out of the IPO starting gate. At its lowest it fell 50% from the highs of birthday. It is well above that now and challenging the $260 mark. There could be sellers lurking there but the price action has been positive.
The bulls have established a higher-low trend that gives them the upper hand with momentum. If they succeed in breaking out they could challenge their next task $25 higher. The process will repeat at $307 per share where the battle would be stronger.
COIN Stock Bulls Will Need to Work Hard
The rally back will not be easy, but it is imperative that they don’t take any steps backward. Losing $230 per share would be a serious blow. Setting a new low under $208 will be devastating, and traders would probably stop out.
By breaking through a new low, the bears could overshoot lower. That would be a great opportunity for the bulls but not before enduring a lot of pain.
Investors should start looking for longer-term setups.
Yes, I am optimistic about the future, but there is reason to worry. The future of COIN stock is not only tied to the company itself. It is also directly dependent to an asset class. It doesn’t matter if the price of crypto affects Coinbase earnings power, perception is what really counts.
The Proof Is in the Pudding
They say that price is truth, therefore opinions aside, I follow the charts. Fundamentally, the financial metrics are still too young to judge harshly. Its price-to-sales ratio is less than 20 and that’s reasonable. This is lower than Tesla (NASDAQ:TSLA) but higher than the FANG gang. At this point it is neither a selling point nor a detriment.
What will be important is for management is to continue growing its top line. Nothing shuts the critics up like results, just ask Amazon (NASDAQ:AMZN). The trailing 12 months revenue for Coinbase is almost $3 billion. This is twice more than last year. Value is not an issue for a company that grows this fast. Dips are definitely buying opportunities but in small tranches. This is a stock that is perfect for selling puts to own shares.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.