Coinbase: Investors Should Be Wary of the Risks

Shares of Coinbase Global (COIN) have fallen over the past year, a few chunks below the 20% drop.

Compared to other crypto stocks that offer some exposure to the prices of cryptocurrencies, Coinbase has lagged far behind.

Regardless of what the price will do in the short term, which is highly volatile as evidenced by a beta well above 4, I don’t believe this stock is suitable for investors looking for steady growth while holding a long-term perspective. Meanwhile, I would adopt a neutral stance.

Based in Wilmington, Delaware, Coinbase Global qualifies itself as a crypto economy builder. The company’s platform provides a financial system that makes it possible to operate in the crypto economy and negotiate crypto assets. The company also provides the technology to build crypto-based applications for securely sending cryptocurrency payments.

Q3 Earnings Results

Coinbase Global’s earnings results were slightly above projections. In the third quarter of 2021, the crypto market was generally soft, and prices had a downward trend. Thus, Coinbase Global reported a nearly 30% drop in trading volumes to $327 billion.

The earnings were $1.62 per share, surpassing the consensus average estimate by $0.19, on total revenues of $1.24 billion.

On average, the company missed analysts’ revenue estimates by about $270 million.

As of the third quarter, the company had 73 million verified users, of whom not even 10% have been transacting every month.

Not for the Long-Term Investor

Globally, cryptocurrencies represent an emerging investment scenario, but given the high volatility, in my opinion, they are not suitable for investors looking for stable growth over time.

Rather than a means of payment, cryptocurrencies are seen as a form of speculation, posing a significant risk to the financial system. For this reason, China banned any cryptocurrency transition, including bitcoin, last spring and pledged to crack down on digital currency payments in all markets. 

In the future, payments in crypto will be allowed in the People’s republic of China and other governments that may still be hostile to the digital currency. The Chinese government is studying the introduction of its own digital currency to complement the Chinese yuan.

To prepare for the appointment, it aims to formulate specific legislation that will welcome and regulate the cryptocurrency market in all its aspects. But as of today, the cryptocurrency economy is viewed with skepticism due to uncertainties about its strength and security.

In addition, the cryptocurrency economy is exposed to cyber-attacks, posing additional risk to crypto stock investors as such an event can cause strong headwinds for stock prices.

For example, according to a classified UN report released in early February 2021, North Korea stole more than $300 million worth of cryptocurrencies through cyber-attacks perpetrated on a stock exchange between 2019 and November 2020. The loot – the report adds – would have been used to fund Pyongyang’s illicit ballistic and nuclear missile development programs.

Wall Street’s Take

In the past three months, 15 Wall Street analysts have issued a 12-month price target for Coinbase. The company has a Strong Buy consensus rating, based on 13 Buys, one Hold and one Sell assigned.

The average Coinbase Global price target is $406.33, implying 55.5% upside potential.

Summary

Be wary of these stocks and other crypto securities as these assets carry a significant investment risk due to the highly volatile market of cryptocurrencies and exposure to cyber-attacks.

Disclosure: At the time of publication, Alberto Abaterusso did not have a position in any of the securities mentioned in this article.

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