Here’s Why Every Investor Should Consider Coinbase

Here’s Why Every Investor Should Consider Coinbase

Reading time: 4 minutes

In 15 years, the cryptocurrency market has transitioned from a small alternative investment option to a multi-billion-dollar industry. Nowadays, you would be hard-pressed to find someone who has not at least heard (or read) about the crypto market.

Founded in mid-2012 by Brian Armstrong, Coinbase Global (Nasdaq; ticker: COIN) is acknowledged worldwide as a major crypto exchange and is the largest platform in the United States (US).

Introducing Coinbase: Basics of the Business

According to the company’s 10-K filing (10-K Annual Report 15/02/2024), this is the company's mission statement, although somewhat vague:

‘Our mission is to increase economic freedom in the world’

The idea is to remove the power of traditional financial institutions. However, the 10-K filing adds the following sentence, which should help clear up any misunderstanding:

‘We are working to update the century-old financial system by providing a trusted platform that makes it easy for our customers to engage with crypto assets, including trading, staking, safekeeping, spending, and fast, free global transfers’.

Coinbase is essentially a company providing a foundation for the future of finance, not just a space where you can trade digital tokens. It offers an infrastructure for what is known as onchain activities, which are transactions that occur within the blockchain network, meaning the data are recorded on the blockchain ledger.

Coinbase primarily works with three customer groups: ‘Consumers’ (think customers who have an account on Coinbase and use it to trade and invest in crypto assets and engage in onchain activities), ‘Institutions’ (these are market makers, hedge funds, and asset managers, for example), and ‘Developers’ (these are the developers and those who issue cryptocurrency assets, etc.).

The company’s Ecosystem Products should also be considered when looking at this company, including Stablecoins, which is a huge part of the business model for Coinbase, estimated in the neighbourhood of 100s of millions of dollars generated through the USDC token.

Understandably, in the long term, most of Coinbase's revenue is derived from offering its cryptocurrency exchange: its centralised marketplace. This is where institutional and retail consumer trading activities occur across digital assets, such as Bitcoin (ticker: BTC) and Ethereum (ticker: ETH). Coinbase generates revenue through volume-based transaction fees and spreads (which can vary depending on location and the payment method).

Performance and Earnings

Following a low of $31.55, the Coinbase stock rallied strongly in 2023, adding nearly +400% and reclaiming a large portion of the downside in 2022. Year to date, the stock is also up +27%. Despite this, since March this year, buyers and sellers have been reluctant to commit, consequently establishing a moderate descending channel range, struggling to entice buying beyond $263.00 and failing to attract sellers below $200.00. You may also see that the lower side of the descending channel is currently converging with resistance-turned-potential support at $187.00. Therefore, a whipsaw beneath the support of $200.00 could be seen if we continue to test the limit of this level.

Daily Chart of Coinbase (Created with TradingView)

The latest round of earnings for Coinbase came in stronger than expected for the first quarter (Q1) of 2024.

Bolstered by rising cryptocurrency pairs, total revenue for the organisation jumped to US$1.637 billion (surpassing Wall Street estimates of US$1.32 billion and up more than +70% QoQ) and observed an increase of US$1.2 billion in net income as well as an increase of US$1 billion in adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation). Net income benefited from a US$737 million pre-tax crypto mark-to-market gain (unrealised).

Earnings Per Share came in at US$4.40, topping the projection of US$1.07.

The company saw a +5% increase in total operating expenses to US$877 QoQ.

Is Coinbase Worthy of the Watchlist?

According to the latest earnings report and the technical studies, this might be a stock worth adding to the watchlist.

Things may become interesting if the stock breaches the descending channel support (tripping buyers’ stops and fuelling selling) and tests obvious support around $187.68.