What happened
After trading with lots of volatility this week, shares of the large U.S. cryptocurrency exchange Coinbase (COIN 6.97%) had risen nearly 9.5% as of 2:23 p.m. ET today for no obvious reason, although there are a few things that could be driving the move.
So what
Coinbase has struggled recently as crypto trading volume, a big driver of revenue on the platform, has slowed this year among a broader decline in crypto prices. But over the last 24 hours, the price of the world’s largest cryptocurrency, Bitcoin, is up 4% as of this writing. The price of Ethereum is up nearly 3%.
Trading at less than $68 per share, Coinbase is down more than 80% from when it went public a little more than a year ago.
Image source: Getty Images.
“The stock appears to trade at a distress level,” Oppenheimer analyst Owen Lau said earlier this week. But the company’s fundamentals “remain strong and long-term crypto adoption remains intact, providing an attractive entry point for long-term investors,” he continued.
Coinbase also announced earlier this week that it would slow hiring after initially planning to triple the company’s headcount. Coinbase had received pushback about the move on its earnings call last week.
“Given current market conditions, we feel it’s prudent to slow hiring and reassess our headcount needs against our highest-priority business goals,” Coinbase’s Chief Operating Officer Emilie Choi said in a blog post.
Now what
Investors may think the slowdown in hiring will reduce expenses this year, enabling the company to post better-than-expected earnings.
I tend to agree with Lau that the current valuation sets up a good long-term buy for Coinbase. If you believe in the broad adoption of crypto then Coinbase will likely benefit significantly from this trend. The company has lots of cash on its balance sheet and currently trades at 7.3 times earnings.