Coinbase (NASDAQ:COIN) stock trades very closely with the price of Bitcoin (CCC:BTC-USD). At first glance this might make sense. However, in reality, it is ridiculous. The price of the asset should not affect the price of the stock marketplace. A trading platform stock price is not vulnerable to drops in the prices of stocks. In fact, the fluctuations in the asset prices are likely to drive more trading. Nevertheless, for now, COIN stock is closely tracking BTC-USD.
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This can, however, be a positive thing because Bitcoin has appreciated over 500% in two years. There are worse things for COIN stock to track than this. If this logic remains in effect for long, investors would want to hang on to the stock. I suspect that this is a transition period where machines are executing on such programs. Eventually they will sever that and go back to trading COIN stock based on its own fundamentals.
In order to justify the long term bullish thesis for COIN, we must also make the argument for cryptocurrencies. The sector has way too many skeptics, but that also is a good thing. Eventually they will make up the pool of incremental crypto traders. Therefore, they are likely to become candidates to use Coinbase platforms.
Ignore Celebrity Skeptics
Meanwhile, high profile banking investment millionaires are doing the general public a disfavor. They insist on calling Bitcoin fake and a bad holder of value. While they have the right to an opinion, they are factually incorrect. BTC-USD has appreciated more than any other asset class for over a decade. Even Dogecoin (CCC:DOGE-USD) made millionaires out of its early investors.
The main criticism is that crypto is fake. Even if it’s true, it is an irrelevant argument to make. It is man-made but it has millions of fans coveting it. Therefore, the balance of supply and demand favors more upside in value in the long run. I don’t believe in some art, but I’d be willing to profit from trading it.
This is the same with gold since we own it for absolutely no functional reason. The value that humans created in gold is totally arbitrary, aka fake. The only reason that it has value is because we believe it does. Except that the financial technology that is coming out of crypto actually serves a huge purpose. Banking will be better later because of what is happening in crypto today.
COIN Stock Is Making Progress
Bitcoin is doing more good for the world than gold. However, I am not here to convince you to start trading it. My point is to highlight the size of the addressable market for Coinbase. It has an early mover advantage, and it should carry that forward a few more years.
There is already intense competition, like crypto.com (CCC:CRO-USD). But there is enough business to go around for all of them to prosper. The more skeptics there are now, the larger the potential pool of signups later. With a base of 73 million users in over 100 countries, Coinbase will execute expansion plans relatively easily.
Technically, the stock has risk from exposure to Bitcoin prices. However, it has shown progress in support with a trend of higher-lows. But if it loses it this year, it would present a tremendous opportunity to buy a significant dip. Therefore, investors should only take partial positions to start. If times get tougher later they would have room to add the rest.
This year started off right on Monday for equities, but yesterday the NASDAQ stumbled hard. I suspect that investors are nervous going into the Nonfarm Payrolls (NFP) jobs report this Friday. Perception is that if we get results that are too good, the Federal Reserve will become combative. In 2018, they feared wage inflation more than anything and this could be a similar situation now.
In reality, I bet they won’t be aggressive with rate hikes. It would make more sense for them to sell assets first to tighten monetary conditions. Nevertheless, they remain a threat to equity prices and we should account for that with COIN investments.
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.