What happened
Shares of cryptocurrency trading platform Coinbase Global (NASDAQ:COIN) popped in early trading today before ultimately succumbing to the downward pressure of the broader stock market. As of 3:15 p.m. ET, Coinbase stock was down 4%.
So what
Coinbase stock had initially popped this morning, likely because of strength in the cryptocurrency market. For example, Bitcoin surged yesterday, as did many other cryptocurrencies. The majority of the company’s revenues come from fees associated with trading cryptocurrencies. Therefore, it’s easy to understand why retail investors get excited about Coinbase stock when cryptocurrencies are rising in value.
Image source: Getty Images.
However, the market fell hard today; the S&P 500 was down 2.3% as of this writing, which is a big move in a single day. And it might be because investors are moving out of riskier growth stocks like Coinbase and into cash. As reported by CNBC, Goldman Sachs data says investors have increased their cash positions by over $200 billion over the past seven weeks, choosing to wait out the currently volatile market conditions.
Now what
Day to day, Coinbase stock likely will remain a volatile investment. But bullish investors with a long-term mindset hope that the company can overcome this volatility by building a cryptocurrency business that is larger than what it is right now. And in a blog post from Coinbase today, we were offered a look at one potential growth opportunity.
While most revenue comes from trading fees today, Coinbase management hopes to hop on the metaverse trend. When it comes to accessing and interacting in the metaverse — a digital world — there’s a need to have a verifiable identity. And the cryptocurrency industry offers a potential solution.
It’s too early to get too excited, and there’s still plenty of challenges for the company to overcome. But while assessing risks, investors should also consider Coinbase’s potential to offer more products and services over time, like identity solutions for the metaverse. Its growth levers could turn it into a winning investment, making today’s short-term volatility worth it.
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.