What happened
Coinbase Global (NASDAQ:COIN) shareholders beat the market on Monday as the stock rose 4% by 12:30 p.m. ET. The S&P 500 was up about 1% in that time. Coinbase benefited from another rebound in prices for many popular cryptocurrencies.
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So what
The business, which provides a marketplace for cryptocurrencies and other digital assets, tends to perform well when prices for these assets jump. That’s just what happened in early Monday trading, during which Bitcoin crossed $51,000.
Coinbase often sees more trading on its platform, and higher transaction fees, while prices are rising quickly. Transaction volume slumped 29% last quarter, for example, management said in early November, due to slumping prices.
Conversely, investors are hoping that a strong finish to 2021 for crypto coins will provide momentum for Coinbase’s business into the new year. The stock is also seen as an attractive option for people seeking exposure to the digital asset world without focusing too much on owning individual cryptocurrencies.
Now what
Management said in a conference call last month that the fiscal fourth quarter was off to a strong start due to rising volatility and higher crypto prices. Those trends appear to be picking up in the final trading days of 2021, adding optimism about the short-term earnings picture. But investors will have to wait until Coinbase’s next quarterly report, likely in early February, for confirmation that sales volumes are rebounding.
In the meantime, look for more volatility in Coinbase stock that roughly tracks with the motion in cryptocurrency prices. Looking further out, the value of the platform will ultimately depend on whether or not these digital assets find significant traction in mainstream commerce. That’s the bigger-picture trend to follow when judging the potential for Coinbase’s stock over the long term.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.