Stock Analysis & Ideas

Crypto Plunge Sends Coinbase Investors Packing

Coinbase (COIN) is still essentially the leading force around when it comes to where to get cryptocurrency. However, given that much of Coinbase’s operations are so closely connected to crypto, any fluctuation therein tends to reflect in Coinbase’s share price.

That’s exactly what happened after a brutal weekend for cryptocurrency as Coinbase stock slid about 13% so far today. I remain bullish on Coinbase, however, because as long as there’s an interest in cryptocurrency, buyers will return to Coinbase.

Coinbase’s year in share prices has been marked by ups and downs, as well as some surprising stability. The first part of the last 12 months features a dive from its post-IPO highs of $342 to just over $225 on May 23. That’s around five weeks to lose that kind of value.

Coinbase held within a fairly tight range of around $225 to around $250 for most of the summer thereafter. August saw the first big breakout, as the company pushed past $280 for the first time since May. Coinbase struggled to hold that position for weeks, but by Labor Day, it was on its way back down to the $225 level once more.

November saw the company shoot up to highs even beyond the IPO, hitting over $357 on November 8. However, that started the big decline to get us where we are today, under $200.

The latest news isn’t much better. After a disastrous weekend for cryptocurrency that featured Bitcoin retracing to levels not seen since July, one of the biggest crypto exchanges around took a hit as a result.

The fallout from Bitcoin’s plunge hasn’t been limited to Coinbase alone; MicroStrategy (MSTR), a cloud-based systems firm, is also down about 12% so far, mostly due to its connection to Bitcoin. The company has several billion dollars worth of Bitcoin, and its share price has been known to change according to the value of its Bitcoin stockpile.

Diamond Hands, Hang on Tight

There’s a principle in cryptocurrency trading known as HODL, an acronym meaning “Hold On for Dear Life.” There’s also a split among crypto investors as to whether or not HODL was deliberate or someone just tried to make something out of a misspelling of “hold,” but that’s just for background.

It’s the idea of HODL that’s so important here. It advises crypto holders to essentially hang on, to refuse to be the “weak hands” that sell at the first sign of doubt or trouble. Why? Because these things are inevitable in any new idea. Or new operation; remember, Coinbase is still a young firm. April marks its first anniversary of being publicly traded.

While there are already breathless pronouncements suggesting that Coinbase looks like “chump change” and that mainstream investors are “flee(ing) Bitcoin,” the principle of HODL comes back. Coinbase is still pretty much the leader in buying and selling Bitcoin and a range of other cryptos.

Granted, the recent plunge has been a disaster. Nothing loses over $1.3 trillion dollars without investors feeling the impact of said losses, especially when those losses take place over roughly three months’ time.

However, a look at Coinbase’s charts over the last year makes it clear: this is a volatile stock. It can gain almost as rapidly as it can lose. It’s still a major name in crypto trading, so if all those who sold off come back to the table in a while, they’ll do so through Coinbase.

It’s also worth noting that Coinbase’s dividend history is nonexistent. That’s not going to endear it to long-term investors looking for an income stock. However, Coinbase’s relatively short lifespan so far suggests that being a growth stock is still quite possible.

Better yet, the recent dip suggests a worthwhile entry point for new potential investors. With Coinbase trading at around half its lowest price target, it certainly suggests room for growth.

Wall Street’s Take

Turning to Wall Street, Coinbase has a Strong Buy consensus rating. That’s based on 13 Buys, one Hold, and one Sell assigned in the past three months. The average Coinbase price target of $411.43 implies 144.4% upside potential.

Analyst price targets range from a low of $300 per share to a high of $600 per share.

Concluding Views

Coinbase is working on unfamiliar ground. It’s perhaps the best place around to buy what may be the investment vehicle of the future. Yes, both were hit hard in the last few days. However, this is not the first time for either. Based on the one-year charts for Coinbase—which covers Coinbase’s entire life so far—this isn’t the first time. The decline from April to May looks at least passingly similar to the decline from November to today; only it took longer.

There’s a lot of room for Coinbase to recover. Perhaps the crypto market is going on hard times, as some suggest. However, there’s also an opportunity to recover, and Coinbase is likely to lead that recovery by being the place where people buy-in on cryptocurrency. That’s all the reason I need to be bullish. HODLing works for crypto coins, so why not for the stock for one of its largest platforms?

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