Coinbase (COIN) Stock Analysis and Forecast | Should I Invest in Coinbase Stock?

Investing
Updated: 13th Apr 2021
Written by Sean Graytok
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Investing
April 13, 2021
Written by Sean Graytok

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Coinbase went public via direct listing (DPO) on April 14th in one of the most anticipated public offerings of the year – but is it a buy?

What is Coinbase?

Coinbase is the world’s most popular cryptocurrency exchange for retail and institutional traders alike.

It has 56 million verified users, which is more than the CashApp and Venmo and significantly larger than Charles Schwab (32 million), Vanguard (30 million), and Robinhood (13 million).

Coinbase makes money by charging a fee to process transactions, typically around 0.50% per trade. This adds up when there are more than $223 billion assets on the platform.

Learn More: Coinbase Review

Coinbase (COIN) Stock Investment Potential

#1. Strong Platform Growth

While crypto is going mainstream, general adoption is still young in terms of users and the overall market size of crypto.

Since crypto is largely unregulated, trust is a key component for users choosing their exchange. Coinbase is positioned to become the default crypto platform for new retail and institutional investors alike.

Coinbase passively and actively benefits from network effects generated by its 65 million users.

Its name recognition – which will increase even more after going public – convinces new users that it can be trusted because 65,000,000 others trust it.

Additionally, existing users are incentivized to have their friends, family, or coworkers use their referral link to sign up for a Coinbase account. The company pays out crypto bonuses for each successful referral registered.

In addition to crypto’s historic 2020-21 run, these two features resulted in a 117% increase in Coinbase’s active users in Q1’21 alone.

Revenue also jumped nine-fold in the quarter to approximately $1.8 billion.

#2. Institutional Investments

Institutional adoption is one of the fundamental differences between this bitcoin cycle and previous – Fortune 500s, hedge funds, bulge bracket banks, and even governments are buying.

Many have chosen Coinbase; the company revealed that $122 billion of the $223 billion assets on the platform are from institutions.

Several banks and asset managers have begun offering custody services, but the fact that traditional firms have ventured into a “non-traditional” asset service is very bullish for Coinbase.

In a recent press release, the company said, “We expect meaningful growth in 2021 driven by transaction and custody revenue given the increased institutional interest in the crypto asset class.”

#3. Bitcoin as An Asset Class

Bitcoin is often compared to gold because it shares many of the same characteristics that make gold special.

Investors turn to gold when they fear inflation – while the Federal Reserve can change the dollar’s supply anytime they please, Gold’s supply is fixed (at least in theory) and is a store of value.

This is why some argue that bitcoin is better at being gold than gold: it’s provably scarce and impossible to counterfeit, in addition to being more portable, divisible, and durable than its metal counterpart.

Adoption is the one area where Bitcoin is still far behind, but that makes the investment opportunity exciting.

Currently, Bitcoin’s “market cap” is just north of $1 trillion, compared to gold’s ~$11 trillion.

This indicates that there are enough people who agree on bitcoin’s value, but there’s still plenty of adoption to occur.

There’s no shortage of opinions regarding Bitcoin; some are confident that it’ll become the global reserve currency, others say it’ll replace gold, and some will tell you it’s going to zero.

But the institutions have spoken – companies like Square, Tesla, and Microstrategy are adding bitcoin to their balance sheets.

The world’s largest asset manager BlackRock has invested in bitcoin in two of its funds.

Goldman Sachs is adding crypto exposure to its high-net-worth clients’ portfolios, and JPMorgan recently set its BTC price target at $130k.

Even legendary hedge fund managers Stanley Druckenmiller and Paul Tudor Jones strongly recommend bitcoin as an asset class.

Things will get interesting once governments and sovereign wealth funds publicly announce investments in bitcoin – even small allocations to BTC in foreign fiat reserves will be felt, given the magnitude of money at that volume.

We believe that increased institutional adoption will bring regulation to the space. While regulation conflicts with the original intentions of Bitcoin, we believe thoughtful regulation is necessary for bitcoin to reach its full price potential.

So, back to Coinbase – the company will benefit greatly if Coinbase becomes the go-to broker for institutional services, which it’s well on its way to accomplishing.

Learn More: Bitcoin vs Gold

Coinbase Pre-Public Strong Numbers

Coinbase released its Q1 financials ahead of its April 14th direct listing – let’s just say it was a good quarter:

  • 56 million Verified Users (for context, Vanguard has 30 million)
  • Total Revenue of approximately $1.8 billion, up nine-fold YoY
  • Net Income of approximately $800 million
  • Assets on Platform of $223 billion – representing 11.3% crypto asset market share
  • $122 billion of Assets of Platform from Institutions

Coinbase says that it measures performance over crypto price cycles instead of quarterly results.

The company acknowledges that its performance is closely correlated to the state of the crypto markets, which typically have “price cycles that range from two to four years.”

Related: Upcoming IPOs

Coinbase (COIN) Stock Forecast

A key performance indicator for Coinbase stock is its “Monthly Transacting Users (MTUs)” due to its high correlation with transaction revenue. This accounts for the majority of total revenue.

Coinbase had 6.1 million MTUs in Q1’21 – the company provided three tiers of guidance for annual average MTUs for the full year 2021:

  • High: Average 2021 MTUs of 7.0 million
  • Mid: Average 2021 MTUs of 5.5 million
  • Low: Average 2021 MTUs of 4.0 million

We believe these are extremely conservative projections. It’s common practice to under promise and overdeliver when it comes to outlook estimates.

See: Tesla Stock Forecast

Coinbase Bear Case

#1. Gains Secured in the Private Market

Coinbase was the most anticipated public offering in 2021 – with that comes hysteria.

Shares of Coinbase were traded between $350 and $375 in a recent private Nasdaq auction.

There’s the possibility that much of the stock’s gains have already occurred in the private markets.

Some companies are staying private longer and becoming much larger before going public. This may be the case with Coinbase stock.

#2. Bitcoin Volatility = Coinbase Volatility (?)

Bitcoin volatility should be on the minds of Coinbase investors. While volatility has decreased, and it’s more evident that Bitcoin is here to stay, the asset is still wild.

It will be interesting to see how investors trade Coinbase stock during rough times in the crypto market – whether it’s a rough, but not uncommon, 9% single-day decline or a more catastrophic 50% drop in price.

#3. Unfavorable Regulation

There’s always the threat of bearish regulation. As previously mentioned, we expect responsible regulation to positively impact bitcoin’s price because it will welcome more institutional adoption.

However, unfavorable regulation that is detrimental to bitcoin’s price appreciation will be detrimental to Coinbase.

See: Best ARK ETFs

Coinbase (COIN) Competitors

Cryptocurrency exchanges vary by transaction fees, security, the number of cryptos offered, user interface, and countless other metrics.

Let’s see the best cryptocurrency exchanges that compete with Coinbase:

Coinbase’s large user base allows it to offer some of the lowest fees in the crypto space, which is often a deal breaker for new investors.

See: Square Stock Analysis

Coinbase Stock Allocation in Your Portfolio

A variety of personal factors determine “the right amount of Coinbase stock” in your portfolio, such as your cash reserves, financial obligations, risk tolerance, and more.

However, these questions might help assess your confidence in Coinbase stock as an investment:

  • Does bitcoin have more upside than Coinbase stock?
  • Does ethereum have more upside than Coinbase?
  • Are you over/underweight crypto?
  • Is GBTC a better option for bitcoin exposure in the public market?
  • Does Coinbase have a large enough moat to fend off competition?
  • Will potential regulation drastically affect Coinbase’s business model?
  • How will Coinbase stock be impacted when more crypto companies go public?

Even the most conservative financial advisors recommend a 1% allocation to bitcoin in your portfolio.

Investors that want traditional market exposure to bitcoin have turned to the Grayscale Bitcoin Trust, often paying a steep premium for shares.

Owning Coinbase stock will be another alternative way to benefit from the rise of crypto without owning the underlying asset.

See: Best Stock Market Websites

Bonus: Experts Cover Coinbase Stock

We recommend following the Motley Fool to stay informed on all things Coinbase stock.

There are psychological factors when betting on Bitcoin and Ethereum, and you should have experts by your side.

Join the team of Motley Fool Stock Advisors and stay ahead of the curve. Read our Motley Fool review to learn more.

Coinbase Stock FAQs

Is Coinbase Publicly Traded?

Coinbase is a publicly-traded company as of April 14, 2021. The company trades under the ticker “COIN” and is available in the public market. Coinbase went public via direct listing, meaning that private shareholders sold their existing shares to the public, and no additional shares were created.

What is the Coinbase Stock Symbol?

Coinbase trades under the ticker “COIN”, a fitting ticker symbol that refers to the company’s name and the crypto space in general. COIN stock will be closely correlated to the performance of Bitcoin (BTC) due to transactional revenue.

How Much is Coinbase IPO?

Bloomberg estimates that Coinbase’s shares were traded between $350 and $375 in a recent private Nasdaq auction. This means the pre-IPO valuation of Coinbase is around $100 billion.

What company owns Coinbase?

Coinbase is a subsidiary of the holding company Coinbase Global, Inc. It is a “remote-first-company” headquartered in San Francisco, CA and has six office locations across four countries (expect this to expand after its public offering).

Does Coinbase have its own coin?

Coinbase has its own cryptocurrency, USD Coin (USDC), which is supported by the Ethereum blockchain. Its value is tied to the US dollar, so 1 USDC is equal to $1.00. USDC is defined as a “stablecoin”, which enables it to be rapidly transferred worldwide at lower costs than fiat.

Has Coinbase ever been hacked?

Coinbase itself has never been hacked. It said that 0.004% of its users had experienced “account takeovers” in 2020, which means bad actors breached their devices and gained access to their Coinbase accounts. Coinbase educates its users on how to prevent hacks and properly secure their accounts.

Bottom Line: Coinbase Stock Analysis

Coinbase’s public offering was a watershed moment for the crypto and traditional finance community.

Crypto applications will likely continue adopting their native currencies, which will bring a stampede of publicly-traded crypto-related companies.

It won’t be cheap, but investing in Coinbase stock may be your opportunity to get in on the ground floor of this exciting innovation.

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Sean Graytok does not own shares of Coinbase.

Sean Graytok
Sean Graytok
Sean is a lifelong student of the financial, media, and marketing industries. He is a Generation Z investing expert and is on a mission to empower investors to make the most of their money.