Can Coinbase overcome a slow start on Wall Street to recover its value?

After floating on the cusp of a downturn in the cryptocurrency market, can we expect Coinbase to deliver a solid end to 2021 for investors?

Coinbase chose to launch on the Nasdaq via a direct listing in April 2021 with a benchmark price of $ 250. the price.

While COIN struggles to maintain its open price, it’s important to recognize the company’s meteoric fundamentals. Coinbase’s revenue climbed 144% to $ 1.28 billion in 2020, before climbing 969% year-on-year to $ 4.03 from the first half of 2021.

The company also turned profitable in 2020 with net profit of $ 322 million, and accelerated those margins to reach net profits of $ 2.37 billion in the first six months of 2021. At the same time, the Coinbase’s trading volume accelerated 142% to $ 193 billion in 2020, then to $ 335 billion and $ 462 billion respectively in the first two quarters of 2021.

So, with such mind-boggling numbers in mind, surely is COIN’s poor market performance of recent times just an oversight? Well, pundits are divided over the prospects for a stock that has been battered by a wide range of external threats from regulators and the broader cryptocurrency market.

With that in mind, let’s take a closer look at what the future holds for Coinbase as the world’s premier publicly traded cryptocurrency exchange:

Stop the development of COIN

Despite its leadership position in cryptocurrency exchanges and its market cap of around $ 50 billion at the time of writing, the outlook is not necessarily positive for Coinbase when you consider the speed of the exchange’s exit for 2021.

“In our opinion, at the moment it’s not worth buying Coinbase shares amid the latest news,” said Maxim Manturov, head of investment research at Freedom Finance Europe, referring to threats from the SEC against the company’s rollout of a new lending feature and the recent drop in the value of Bitcoin.

“Additionally, after the second quarter report, the company expects transaction volumes to decline in the third quarter, which could lead to higher costs and lower profitability for the company,” Manturov added. . “In the short term, this could put pressure on the price of Coinbase, which could cause the company’s shares to rise slightly. For example, analysts at Mizuho Securities believe Coinbase may have lost bitcoin market share as retail users trade less and institutional investor returns continue to decline.

Although Coinbase has since abandoned its plan to introduce a cryptocurrency lending platform amid threats of legal action from the US Securities and Exchange Commission, Manturov noted that it may be worth the effort. wait until Bitcoin shows signs of stability before considering COIN as a long-term investment option.

We are seeing new evidence of Coinbase’s symbiotic relationship with Bitcoin in the wake of the Evergrande crisis in Chinese real estate. Although the cryptocurrency ecosystem is largely decentralized, sales by investors of traditional stocks, like Evergrande’s, can create deep problems in the world of digital finance – with Bitcoin’s value dropping by 10 % as a result of the clearance sale.

With this in mind, any investment in COIN must come with the awareness that a stock so intrinsically linked to crypto can also be severely affected by market downturns.

Attract growth investors

Despite legitimate concerns about the external pressures Coinbase faces, the stock still attracts interest from world-class investors.

Notably, Coinbase attracted Cathie Wood as a speculative investor. The famous Ark Invest CEO is said to have accumulated a combined 5.95 million shares stake in Coinbase – for a total of around $ 1.46 billion at the time of writing. This level of investment amounts to around 3.4% of total assets under management, making Coinbase one of Ark’s largest collective holdings.

Wood’s confidence in the action stems from the broader belief that cryptocurrency adoption will continue to grow over the next several decades, as more companies choose to hold coins like BTC in their stores. balance sheets.

(Image: Statista)

(Image: Statista)

As the data above shows, there has been a clear and sustained increase in the prevalence of blockchain-based wallets over the past six years. Coinbase’s fundamentals reflect a trend both towards higher assets on the platform (AOP) and ever larger trading volumes. While the platform makes money on both the buying and selling aspects of the crypto, it is naturally in a better position to make more money if the prices of cryptocurrencies tend to rise.

Although the cryptocurrency landscape is affected by many factors, inflows are generally correlated with higher cryptocurrency prices, as new investors are drawn to asset appreciation – while existing users benefit from capital gains.

With that in mind, it’s worth zooming out on the recent trials and tribulations of Coinbase and taking into account the larger cryptocurrency ecosystem. As one of the world’s early crypto-focused entrants to Wall Street, COIN represents a great opportunity for investors to speculate on the future growth of Bitcoin and Ethereum while staying in tune with traditional stocks. When playing the long game, a bet on Coinbase represents a bet on the cryptocurrency ecosystem – which historically has been a very rewarding bet lately.

This article originally appeared on FX Empire

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