Many people have decided against directly investing in cryptocurrencies, but they may still be interested in gaining exposure to the sector via stocks. There is also the possibility of purchasing Coinbase shares; nevertheless, this begs the question:
Coinbase: what exactly is it?
Users are able to purchase and sell various cryptocurrencies on the centralized cryptocurrency platform known as Coinbase. Coinbase is best known for its exchange. Retail investors and traders, in addition to huge financial institutions, are its primary customers.
Users are not restricted to only using the platform’s cryptocurrency exchange; in addition, they have access to interest-earning products, derivatives, credit cards, lending services, and the platform’s recently introduced NFT marketplace. Coinbase provides institutional clients with crypto custody services that include storing, securing, and providing insurance for significant volumes of cryptocurrency assets.
How does Coinbase generate revenue for itself?
The majority of Coinbase’s income, as stated in a recent letter to its shareholders, comes from transactions involving cryptocurrencies that are conducted on behalf of the company’s customers. The remaining portion of its income is generated by what the company refers to as “subscription and services.” The primary contributors are the rewards and fees derived by custodial accounts on the blockchain.
Is An Increase In Coinbase Stock Price Anticipated?
The various price forecasts for Coinbase are rather inconsistent. It belongs to the class of stocks known as growth stocks, which indicates that it has a high risk in addition to a large potential return on investment.
In addition to the “headwinds” that Coinbase encountered in the market during the previous quarter, it, along with other exchanges and the industry as a whole, is suffering from the failure of the competing exchange FTX. As a matter of fact, Coinbase published a research paper on November 15 projecting that the collapse of FTX might prolong the crypto winter by a number of months, perhaps even until the end of 2023, as reported by CoinDesk.
According to an article published by Fortune in May, well-known investor Jim Chanos forecasts that the price of Coinbase stock will continue to decline in the year ahead due to rising competition and dwindling income, perhaps reaching as low as $23 per share. Later, Chanos voiced his disapproval of Coinbase’s high-priced business strategy, predicting that competitors like as Fidelity and Vanguard will soon offer more competitive prices for the same services offered by the cryptocurrency exchange.
However, it is evident that there are still a significant number of people who have faith in the stock’s prospects. The “hold” suggestion was the most popular choice among the 30 different experts who were surveyed by CNN Business.
What do you anticipate the price of Coinbase stock will be in one year?
Even a price forecast for Coinbase that is calculated over the next year is speculative since the economic environment and the cryptocurrency markets might undergo dramatic shifts in such a short amount of time. However, according to the results of a survey conducted by CNN Business, 26 industry experts have provided a 12-month price projection with a median value of $55, which is 4.6% lower than its current price. Those who are the most optimistic about the stock’s future have price targets as high as $200.
Both the Positive and Negative Arguments for Coinbase
The price of Coinbase’s stock is influenced both positively and negatively by a number of factors. Here are some of the most important aspects to take into account.
The Argument in Favor of Coinbase
Coinbase is supported by investments from a number of well-known firms operating in the financial services industry, including Andreessen Horowitz and Cathie Wood’s Ark Invest, amongst others.
The company’s commitment to the creation of new products is yet another encouraging indicator. And although though 2022 was a very difficult year, shareholders have seen a gain of 67% so far in 2023.
Enhancements to the Overall Business Customer Experience
The implementation of Coinbase Intelligence resulted in an enhanced experience for Coinbase’s corporate clients. This includes the company’s Know Your Transaction programs, which are aimed to identify risk by analyzing millions of transactions. This compliance viewpoint is more critical than ever before as a result of the bear market, which has caused many crypto institutions to begin experiencing challenges with their liquidity.
Retail Market Improvements
Coinbase is in the process of launching a subscription service to its platform, which will provide users with zero fees — with the exception of the spread fees that are priced into purchases, sales, and exchanges of cryptocurrency — 24/7 phone support, and up to $1 million in protection against unauthorized account access. This service is targeted toward the retail market. According to Pymnts, the price of the service will be $29.99 a month as of August 2022. The service, which is now in the beta testing phase, is dubbed Coinbase One.
Despite the fact that Coinbase One does not apply to Advanced Trading, Coinbase Pro, or Prime Broker, the company’s income streams will become more diversified as a result of the launch of this product. On August 23, CEO Brian Armstrong said in an interview with CNBC that one of his goals for the firm is to reach a point where more than fifty percent of its income comes from subscriptions and services.
Acquisitions and Economic Development
In 2021, Coinbase completed the acquisition of Bison Trails, a cryptocurrency infrastructure business, as part of its efforts to develop Coinbase Cloud. This is a clear indication that the firm intends to compete in the cloud services market, which is currently dominated by market leader Amazon Web Services and has generated a significant amount of revenue for the company.
According to a report by CNBC, Coinbase has entered into a partnership with Google to enable the latter’s customers to pay for Google’s services using bitcoin. This would allow Coinbase to use Google’s cloud infrastructure and reduce its dependency on AWS. As part of the partnership, Google will store and trade bitcoins, as well as process transactions using Coinbase Commerce and Coinbase Prime. These services will also be available to users.
The Bull and Bear Arguments for Coinbase
Coinbase revealed its catastrophic financial performance in its most recent earnings report, which was issued on November 3 and covered the quarter that concluded on September 30. The firm had a loss of $545 million for the most recent quarter, compared to a profit of $406 million for the same period in 2021. This is the company’s second consecutive unprofitable quarter. The decrease in yearly net income was more than half way through the year. According to CNBC, Refinitiv analysts projected a loss of $2.40 for earnings per share, while the company actually posted a loss of $2.43 for those shares.
Price Forecasts That Are Pessimistic
It is very evident that Coinbase is enduring difficulties simultaneously with the bitcoin sector as a whole. The annual loss for shareholders now exceeds 72%. If the firm continues to fall short on the revenue and profitability front — which is not improbable given the lower trading volumes that have resulted from the bear market and a possible saturated U.S. market — the stock may very well continue to trade down. This is not an implausible scenario.
It would seem that the corporation is cognizant of the fact that its major market is contracting. Armstrong revealed in June 2022 that the firm will be laying off 18% of its full-time employees in an effort to assist the business prevent more losses.
A week after reporting its profits for the third quarter, the business made the announcement on November 10 that it would be laying off an additional 60 people, the majority of whom were from its recruitment and institutional onboarding teams. In addition, the corporation said in January 2023 that it will reduce the size of its personnel by an additional 20%.
What You Should Know Before Putting Your Money Into Coinbase Stock
The bullish thesis for Coinbase stock is predicated on the widespread use of blockchain technology and cryptocurrencies. Customer acquisition is one of the most important variables to examine, and early results are encouraging in this regard. The number of monthly transacting users has steadily decreased from 11.2 million in Q4 2021 to 8.5 million in Q3 2022, which is the most recent quarter for which results have been reported. However, the number of verified users on the platform has increased from 36 million in Q2 2020 to 108 million as of February 2023.
Furthermore, Coinbase went public at a time when trading in cryptocurrencies was on the increase; nevertheless, while having a first-mover advantage, the company is still operating in a competitive climate that is becoming increasingly intense. According to Forbes Advisor, there were over 500 different cryptocurrency exchanges operating as of November 2022. That indicates a saturated market even before dropping trade volume.
According to statistics provided by CoinGecko, the amount of cryptocurrency trade has lately seen a precipitous decline, resulting in the global market value falling from $3 trillion in November 2021 to about $863.19 billion as of December 18, 2022. According to the financial report for the third quarter of 2022 that was released by Coinbase, the whole market cap dropped by thirty percent within just that one period.
Despite the fact that it does not seem like Coinbase will benefit from the environment in the near future, the company has shown resiliency throughout its existence. When all of these considerations are taken into account, Coinbase needs to be regarded as a speculation since it has a high-risk, high-reward profile.