Shares of popular crypto-exchange platform Coinbase (COIN) have been under an absurd amount of selling pressure over the past year, tanking more than 85% from peak to trough. The negative momentum has been unforgiving to even the boldest of investors. Innovation investor Cathie Wood recently announced that she had thrown in the towel over the reported SEC probe. Undoubtedly, the SEC securities warning is more salt poured into the wounds of Coinbase’s already ailing shareholders.
With Cathie Wood likely selling her stake at a considerable loss, many investors likely find themselves in a bit of a predicament. In any case, Coinbase stock has already endured far more damage than most established cryptocurrencies, including Bitcoin (BTC-USD). Indeed, the amplified volatility versus various crypto assets was a surprise to some. Few could have seen the SEC hailstorm that made headlines just over a week ago.
With the so-called crypto winter likely to take hold as the speculative appetite fades, the case for taking a bit of profit off the table after the recent relief rally is strong. Though Cathie Wood is erring on the side of caution, venturesome investors who still believe in the future of crypto infrastructure may still have plenty of reasons to hold on for dear life (HODL), as meme stock investors put it.
Indeed, the recent relief rally across the broader basket of risk assets is encouraging. Whether Bitcoin’s test of US$24,000 marks the beginning of the end of crypto winter remains to be seen. Should the reversal of the crypto relief bounce sustain, it’s possible that COIN stock could amplify the gains to be had in the crypto markets.
In any case, I am neutral on COIN stock. The high rewards potential accompanies equally high risks. Though the valuation seems enticing at around $91 and change per share, being singled out by the SEC introduces massive risks that are difficult to gauge.
Coinbase Stock is Difficult to Value
At 3.6 times sales, Coinbase is far cheaper than most defensive value stocks bid up over the past several months. While Coinbase may have over-earned when the crypto markets were flying high, it’s tough to say how long its ensuing period of under-earning will last. The single-digit price-to-earnings (P/E) multiple has now gone negative, with just price-to-sales (P/S) to go by. For investors who’ve held on thinking that the name was a compelling value play, the shift to a loss has made the firm that much harder to value.
Rising interest rates, a potential crypto winter, and now SEC involvement have created the perfect storm. While I think the bar is incredibly low on shares of Coinbase, I’m hesitant to back up the truck on the latest dip until the air is cleared with the SEC.
For now, it’s hard to fault Cathie Wood for parting ways with Coinbase. While she still may be a believer in the future of crypto and the blockchain, there are other firms out there that don’t have the same magnitude of SEC concerns.
Most notably, Block (SQ), formerly Square, is a crypto-flavored fintech that Cathie Wood may wish to double down on as the fintech waters continue to go out. Like Coinbase, Block’s latest quarter was weighed down by the weakness in Bitcoin prices. In any case, Block doesn’t depend on the health of crypto markets as Coinbase does, thanks to its robust payments businesses.
Pressure Mounts for Coinbase Stock after Ugly Second Quarter
For the second quarter, the company saw falling crypto prices weigh heavily on trading volumes. Net revenue fell more than 60% to $803 million, while Coinbase’s per-share losses came in at -$4.98, much worse than the analyst consensus estimate that called for -$2.47.
Coinbase endured a brutal implosion that famed short-seller Jim Chanos saw from a mile away. Given that transaction fees account for an overwhelming majority of revenues (around 80%), Coinbase is tightly-coupled to the price of crypto assets.
Coinbase Stock Gets Lift from Meme Stock Traders
With the recent relief in Bitcoin and the broader basket, there is hope that a full-blown crypto winter can be avoided. Amid the stock market’s relief rally, speculative activity saw an uptick, with various meme stocks being bid up. Indeed, Coinbase stock seems like a meme stock in its own right, given recent activity on Reddit’s WallStreetBets forum.
Coinbase stock recovered a bit of ground since its partnership with BlackRock (BLK) was announced. As a part of the deal, institutional clients will have the ability to purchase Bitcoin through the platform.
Though it’s hard to gauge where the wild waters of the crypto waters will move next, such news is encouraging to investors who’ve been dealt nothing but bad news of late.
Is COIN Stock a Buy or Sell?
Turning to Wall Street, COIN has a Moderate Buy consensus rating based on 10 Buys, seven Holds, and two Sells assigned in the past three months. The average COIN price target of $101.18 implies 11.9% upside potential. Analyst price targets range from a low of $42.00 per share to a high of $220.00 per share.
Takeaway – COIN Stock will Continue being Volatile
Coinbase remains a high-risk/high-reward play that’s guaranteed to be an incredibly volatile time for investors. Though further strength in crypto could fuel a continuation of a rebound in Coinbase stock, investors must not underestimate the implications of ongoing SEC involvement. Indeed, the stock seems too risky for Cathie Wood, a venturesome investor who remains incredibly bullish on the future of crypto.