Cryptocurrency exchange leader Coinbase (NASDAQ:COIN) has had a rough go of things lately. With the crypto market in general in decline, the company saw its shares fall in Thursday’s trading session. What prompted the plunge for Coinbase? Wells Fargo (NYSE:WFC) began coverage of the stock, and the news wasn’t good at all. Analyst Jeff Cantwell kicked things off poorly for the exchange leader, calling the company a Sell with a $57 price target.
Cantwell’s reasoning is almost unimpeachably sound and features a laundry list of troubles ahead. Increasing competition from Bittrex and others was one factor, as well as increasing government restrictions on crypto, a likely further decline in share prices, and the macroeconomic environment.
I last spoke of Coinbase two weeks ago, and I was neutral on the company then after spending quite a bit of time bullish. I’m going to hold to neutral for now, but bearishness is just around the corner.
Things are not looking good at all for Coinbase, and while I’m not quite in agreement with Jeff Cantwell’s projections, he’s got too many sound points to not take this seriously.
Investor Sentiment is Surprisingly Upbeat for COIN Stock
While things aren’t looking good at Coinbase right now, you’d never know it looking at investor sentiment metrics. Right now, Coinbase has a 6 out of 10 Smart Score on TipRanks. That’s the high side of the midpoint, which suggests a slightly better than even chance that the company will outperform the broader market. It’s almost perfectly neutral.
Despite this, it’s clear that Coinbase insiders are backing the company, if only in aggregate. The last informative trade hit four months ago after director Frederick Ehrsam purchased just over $1.8 million in shares.
Meanwhile, for the last three months, insider trading at Coinbase is clearly buy-weighted. Insiders staged only three sell transactions, but 15 buy transactions. Expanding out to the last 12 months, however, tells a different story.
In the last 12 months, insiders staged 45 sell transactions, but only 40 buy transactions. Looking at Coinbase share prices, however, suggest this is all fairly reasonable. The bulk of the insider selling came back in late 2021 when share prices were at their highest. Most of the buying activity comes in starting in May 2022, when shares began their second major leg down.
A Terrible Environment for Crypto and Coinbase
Here’s the problem in a nutshell for Coinbase: Jeff Cantwell is about 95% correct in his assessment of Coinbase, as far as I’m concerned. The one point that I will quibble with his assessment is the impact of competitors in the market. Cantwell looks for Binance and FTX to step in and take a chunk out of Coinbase’s market share.
I’m less concerned about that point. Coinbase has quite a bit of appeal that should help keep it insulated from at least some of those market pressures. Trading in different cryptocurrencies, for example, as well as points like user interface and name recognition, should prevent a lot of users from jumping ship.
It’s all the other problems that will hit Coinbase. They’ll also hit all the other companies involved in the market. The macroeconomic environment is indeed a disaster for crypto in the making. A large portion of potential crypto buyers are busily fighting off rising prices in the grocery store and once again at the gas pump.
The Biden Administration recently stood in the tide, King Canute-style, and demanded that gas stations start lowering prices now. Like, right now. Not in a month (when midterm elections are about to take place, no less), but right now. Prices were back up over $4 per gallon in many places. Thus, the notion that people might buy less Dogecoin as a result is not out of line.
Indeed, that restrictive environment is also an issue. The Brookings Institute recently took a look at the future of crypto regulation, and the keyword seems to be “more.”
The executive director of the Milken Institute Center for Financial Markets and former Securities and Exchange Commissioner Michael Piwowar gave a grim view for those hoping for unregulated markets.
Piwowar noted that “…nine out of 10 (crypto applications) were outright fraud, and then out of the one out of 10, nine out of 10 of those were probably fraud.” That’s not a bell ringer for confidence, and it’s a pretty safe bet that a lot more regulation will follow.
As for likely future decline in Coinbase shares, well, I’d agree with that too, at least up to a point. Coinbase still has a ways to go before it hits its lowest price targets.
With all of these factors working against Coinbase, it wouldn’t be a surprise at all to see a further decline in Coinbase. It’s not necessarily going to happen, but if it does, it would be right in line with everything else we’ve seen happen so far.
Throw in a $350 million patent infringement lawsuit that threatens Coinbase’s staking capability, and things only get worse. Coinbase is trying to turn things around with new NFT floor pricing feeds, as well as support for three new altcoins built around Ethereum.
Hopefully, those points will help, but with so many major issues facing the company, it’s unclear how much help these can be.
Is COIN Stock a Buy or Sell?
Turning to Wall Street, Coinbase has a Moderate Buy consensus rating. That’s based on eight Buys, seven Holds, and three Sells assigned in the past three months. The average Coinbase price target of $94.18 implies 53.64% upside potential. Analyst price targets range from a low of $42 per share to a high of $220 per share.
Conclusion: It’s Just Not a Good Time for COIN Stock
Right now, almost everything that could be going wrong for Coinbase is, and not just for Coinbase, either; it’s also going wrong for the cryptocurrency market, for the broader stock market, and for the broader-still economy as a whole.
That’s why I’m staying neutral on Coinbase for now. All the negative factors are in play, and they’ll be in play for some time. That’s why I’m certainly not bullish, suggesting now is a good time to buy in. That will likely come later after Coinbase has taken another third or so off its share price and is trading under the low price targets.
I’m also not bearish, which would suggest that people sell what they have. Despite Coinbase’s troubles, it’s still a leader in the crypto space, and crypto isn’t likely to fade out altogether, so Coinbase will still see a trade in this field.
However, if things get much worse, that’s likely to change. It might be a good idea to sell off just to preserve what little value is still left in Coinbase stock. There will be a time to come back and re-establish a position, but the time to hold that position is fast running out.