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This Coinbase Stock Forecast examines the business model of Brian Armstrong’s company, and tries to determine if the stock is a buy or a sell.
Coinbase Stock Forecast: A Brief Background
It has 89 million verified users, which is more than Charles Schwab and Vanguard combined.
Coinbase makes money by charging a fee to process transactions, typically around 0.50% per trade.
This adds up when there are more than $278 billion assets on the platform.
Coinbase Stock Forecast: Investment Potential
#1. Strong Platform Growth
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 both retail and institutional investors.
Coinbase passively and actively benefits from network effects generated by its 89 million users.
Its name recognition – which will increase even more as network effects set in — convinces new users that it can be trusted because 89,000,000 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 bull markets, these two features substantially increase adoption at low costs to Coinbase.
#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 about half of the assets on the platform belong to 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 US treasury 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 around $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.
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.
Coinbase Stock Analysis: Quarterly Earnings
Coinbase reported Q4 2021 earnings in February. Let’s see the highlights:
- Earnings per share: $3.32 versus $1.85 expected
- Revenue: $2.5 billion versus $1.94 billion expected
- Monthly Transacting Users (MTUs): 11.4 million versus 2.8 million a year ago
- Trading Volume: $547 billion versus $89 billion a year prior
- Assets on Platform: $278 billion versus $90 billion a year prior
Those are astronomical year-over-year increases. Crypto moves fast.
Coinbase also revealed that it made about $64 in transaction revenue per user in the full year 2021.
A number of other projects are underway, too. Coinbase plans to launch an NFT marketplace to compete with OpenSea, and a derivatives trading platform to compete with FTX, CME, and many more.
Coinbase is trying to be the one-stop-shop in one of the fastest growing industries in history.
Coinbase Stock Forecast: The Bear Cases
#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.
Revisiting this question months after the IPO, this appears to be very much the case.
#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.
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.
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:
- Is there too much execution risk with Coinbase compared to the underlying asset its riding?
- 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?
- Are bitcoin mining stocks like Marathon, Hut 8, and Riot Blockchain better bitcoin proxies?
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.
Coinbase Stock Forecast: FAQs
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.
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 Forecast
Coinbase’s public offering was a watershed moment for the crypto and traditional finance community.
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.
This article is for informational purposes only, and it is not intended to be investment advice. Read our editorial guidelines and public equities research methodology to learn more about how we researched Coinbase stock.