What happened
Shares of top cryptocurrency exchange Coinbase Global ( COIN -6.55% ) were down 6.6% today as of the market close. Some cryptos were falling in price again today due to the escalating conflict between Russia and Ukraine. Bitcoin ( BTC 1.96% ) and Ethereum ( ETH 2.04% ), the two largest cryptos by market cap, have been in retreat over the last seven-day stretch, and Coinbase is falling in sympathy.
|
Asset |
Market Cap |
Seven-Day Price Change (Decline) |
|---|---|---|
|
Bitcoin |
$721 billion |
(13.9%) |
|
Ethereum |
$313 billion |
(16.1%) |
|
Coinbase Global |
$38 billion |
(9.3%) |
Data source: CoinMarketCap and YCharts.
Image source: Getty Images.
So what
Coinbase’s recent tumble can be chalked up to ongoing risk-off market sentiment rather than geopolitical uncertainty. While Russia is a hotbed for crypto mining and investing (cryptos aren’t allowed to be used for financial transactions in Russia, only as an investment vehicle), Coinbase doesn’t operate in the country.
Rather, market turmoil over the conflict is combining with angst regarding coming interest rate hikes from the U.S. Federal Reserve. The Fed has indicated it will begin raising rates next month, and could raise them a few more times later this year in an attempt to beat back inflation. Since higher rates lower the present value of stocks, that’s the real reason Coinbase has hit a rough patch as of late.
Now what
To be sure, lower cryptocurrency prices are a concern for Coinbase. But the company has already proved it does have some built-in resistance to this effect since it charges fees per trade. If heightened volatility in Bitcoin, Ethereum, and other digital currencies is indicative of higher trading volume, Coinbase should be just fine when it provides shareholders with a fourth-quarter 2021 financial update this Thursday, Feb. 24.
Longer term, Coinbase continues to develop an ecosystem in support of decentralized applications and other next-gen uses for the internet (often referred to as web3) using blockchain technology. Now trading for 12 times trailing-12-month adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), this might be the stock for you if you’re interested in betting on crypto.
Just bear in mind this will likely remain a highly volatile stock for the foreseeable future given the early stages of the crypto economy. Invest accordingly.
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.