Having recently gone public, Coinbase has attracted a lot of attention, but is this cryptocurrency platform a good buy right now?
Coinbase (NASDAQ: COIN) is an essential link for those who want to buy cryptocurrency, store it, and potentially use it for day-to-day transactions. This is the first crypto company to go public in the U.S. and its direct listing was met with much excitement. So, a few days after it went public, we ask if Coinbase is a good buy right now?
The bull case for Coinbase
Coinbase’s current market cap sits at just over $65 billion, which is impressive for a company that only just went public. However, its direct listing was a huge success with its stock price shooting up to $424 shortly after opening. It has been in decline since then, but any pull-back is good for investors who are determined to invest in this company. Indeed, they wouldn’t be the only ones as Cathy Woods bought 750,000 shares on its first day, spending $246 million. Those shares have been distributed among 3 of her ETFs, including the Ark Innovation Fund.
Coinbase has huge potential as a crypto dealer in a market that is only going to get bigger. Tesla, Paypal, Square have all recently announced that they are adding Bitcoin (CRYPTO: BTC) as a method of payment. As Coinbase is the largest cryptocurrency exchange in the U.S., it has benefitted hugely from this.
Currently, it boasts 56 million users, which is a 30% increase since the end of 2020 alone. Furthermore, Coinbase has $223 billion in crypto assets and it estimates that it oversees around 11% of the crypto market. Possessing this percentage of the crypto market share will be instrumental in the future for building a solid foundation as the go-to crypto company.
As for its financials, in 2020 revenue increased 139% year-over-year to $1.14 billion. The company generates 94% of its revenue from transaction fees, with 44% of that coming from Bitcoin alone. Coinbase is also in the process of attracting larger clients to help ameliorate any volatility it might face. Last year MicroStrategy purchased $425m of bitcoin, which it holds on the Coinbase server, whilst Third Point, a $17 billion hedge fund is also a client of the crypto company.
The bear case for Coinbase
Investing in any newly public company is always a bit on the riskier side. Once the hype fades away and the stock settles into public life then it needs to be able to keep up profits and show overall growth. For Coinbase, in particular, this is an important factor as it’s currently at the center of enthusiasm for the cryptocurrency trend. For many investors, it might be better to wait a few quarters and see if its reports indicate a good financial basis going forward.
Coinbase, although the only cryptocurrency company to go public so far, will soon face heightened competition. It already has competitors such as Gemini, Bittrex, and Binance who are likely to undercut Coinbase in its prices going forward.
Coinbase also has another reason to be wary; the fact that it is entirely cryptocurrency dependent. Within seven months the company’s valuation jumped from $5.3 billion in the private equity market to $100 billion just after its public debut. This has been driven by a rapid increase in cryptocurrency as a whole and If the crypto market becomes turbulent again, then it will be severely impacted. On the one hand, this current trend seems like it might be here to stay. On the other hand, it is a risk having an investment so dependent upon a market that is both relatively new and also known in the past for its volatility.
So, should I buy Coinbase?
Coinbase is still a bit of a riskier stock. Although it has had a fantastic debut, the unknowns are still a few too many. Therefore, anyone buying this stock would be advised to wait a few more quarters to let the dust settle. This will also give more time to watch the current crypto trend and work out if Coinbase will continue to do well even if a slow down of crypto trading was to occur.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.