Since the stock’s debut earlier this year, the Coinbase (NASDAQ: COIN) share price is down. The recent news of a $500m diversification of its portfolio via crypto assets had investors speculating as to what this could mean for the Coinbase share price. So, does this mean it’s a good time for me to buy some shares before a rise in price? Let’s take a look.
Coinbase diversification
Let’s begin by addressing the recent announcement by Coinbase. Earlier this month, the firm provided an update to investors in which it asserted its belief in the crypto economy. Its $500m investment will include “Ethereum, Proof of Stake assets, DeFi tokens and many other crypto assets supported for trading on our platform.” Bitcoin will also be included on its balance sheet. I think this is a good move, underlining the fact that the firm is a strong believer that crypto is here to stay. As my colleague Nadia Yaqub highlighted, CEO Brian Armstrong expects growth in the portfolio as the market matures. For me, and many investors, this is great news. Coinbase also stated that 10% of quarterly future profits will be added to the portfolio, while CFO Alesia Haas stated how this will enable future crypto adoption on a larger scale.
Although this seems like positive news, I am wary. I only have to look at the fluctuation in the price of Bitcoin from the start of the year to see how volatile the crypto market really can be. This for me is an issue. The fact that the crypto economy is so volatile does dampen my optimism regarding this move. Add to this the idea that many coins tend to mirror the performance of Bitcoin, should it fall, not only will Coinbase revenues fall – but also the value of its portfolio. This would no doubt have a negative impact on the Coinbase share price.
Other factors
Let’s also look at the fundamentals. The platform continues to expand. In its Q2 2021 update, Coinbase emphasised how it now has 68m verified users. On top of this, retail monthly transacting users were up 44% on Q1 2020, to 8.8m. This is in line with the growing popularity of cryptocurrencies. If this growth continues, this should lead to a rise in the Coinbase share price. With the stock down 20% since its IPO, could now be a good time for me to buy before we witness even further growth in cryptocurrency users?
My verdict
Despite the fact I am dubious about cryptocurrencies, it does not change the fact I think they could play a major role in the future. With that said, the main issue for me is that the market is still maturing. Coinbase was keen to state how it was the first public company to make such a move – so the outcome is unknown. And that uncertainty is exactly why I am cautious to invest. As much as I could be missing a great opportunity, for now, I will not be buying.
The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.