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As one of the stocks that provides investors with a sentiment gauge in the cryptocurrency markets, Coinbase (COIN) is an interesting case study to consider.
This is because the value of COIN shares is only linked to the prices of cryptocurrencies. When Bitcoin, Ethereum, and the happy gang outperform, trading volumes on exchanges such as Coinbase skyrocket. For COIN equity investors, higher trading volumes translate to higher fee-based income and greater profitability for investors. (See Coinbase stock charts on TipRanks)
As a result, Coinbase has a lot to gain from the hype that continues to rise, pushing up crypto prices. When highly respected celebrity CEOs like Elon Musk take to Twitter and wonder if they will allow the use of Bitcoin as a transaction currency, cryptocurrency prices fluctuate wildly.
After all, these assets are much more volatile than your grandfather’s traditional investment. Indeed, the fact that a series of tweets from someone like Musk has the potential to increase the degree of volatility that we have seen in crypto recently, makes investing in all cryptocurrency-related businesses , such as Coinbase, a much more difficult task.
With that said, let’s see if investors may want to view COIN stocks in light of these factors.
Attractiveness of crypto investment questions for COIN equity investors
Coinbases’ business model is pretty straightforward, really. This company is a cryptocurrency exchange. As the company points out on its website, Coinbase is the easiest place to buy and sell cryptocurrencies. This is a simple yet effective value proposition that investors can support.
Additionally, as a crypto exchange that derives more than 90% of its income from transactions and services, one could argue that shares in the cryptocurrency markets might not have an impact on investors in COIN shares in as many believe. This is true up to a point. Coinbase’s fee-driven business model means that even if investors sell their holdings, Coinbase will make money. Coinbase wins when there is massive buying volume, but also when investors scramble to exit. It’s good for investors in Coinbase.
The story continues
However, the factor that investors are watching closely is the speed at which new users are entering exchanges like Coinbase to buy or sell crypto.
Considering the easy money many young investors have made on YOLO bets in the crypto space, a flood of first-time crypto investors has driven a significant chunk of overall Coinbases volume lately. If this influx of new crypto investors for the first time slows down, Coinbase could experience a deceleration in growth.
As a result, investors will keep a close eye on how influential thought leaders are driving the crypto markets forward. Let’s stick with that idea for a minute.
Elon Musk and his friends have the power to move the market
The wild swings that Bitcoin has experienced over the past few months have been accelerated by tweets evolving in the marketplace from influential individuals such as Elon Musk.
Indeed, Elon Musks’ tweets in mid-May sent Bitcoin on what appeared to be a downward death spiral. After already losing altitude after hitting an all-time high of almost $ 65,000 per token in mid-April, Bitcoin has fallen to around $ 33,000 per token in recent days, losing more than 50% of its value. in about a month.
With Bitcoin appearing to have stabilized around the $ 35,000 level lately on relatively normal volume, maybe all will be forgotten in no time. However, it’s worth looking into what led to this volatility to get a sense of what might be on the horizon.
On May 13, Musk tweeted that Tesla (TSLA) would no longer accept Bitcoin for Tesla purchases. Why? The CEO of Tesla spoke about climate concerns related to Bitcoin’s mining activities. On May 16, a series of cryptic tweets from Mr. Musk inspired further sales, implying that Tesla may, or may already have, attempted to part with a portion of the $ 1.5 billion the company has invested in Bitcoin. Mr. Musk followed up on those tweets by quickly clarifying that the company had not sold any of its stakes at that time.
Regardless, the fact that Bitcoin plunged around 20% in a short period of time on these tweets confirmed Mr. Musk’s evolving power in the market. Investors in Bitcoin or Coinbase are de facto putting their returns in the hands of a CEO who apparently hasn’t made up his mind on the crypto space.
Mr. Musks’ recent initiatives to push for greater use of green energy in the Bitcoin mining space led to the founding of the Bitcoin Mining Council. This advice has been posted online, with Elon Musk seemingly on the sidelines of this business. However, Musk recently reversed his initial decision not to allow Bitcoin for Tesla purchases, pending confirmation of reasonable use of clean energy by Bitcoin miners.
The vagueness of this statement seemed to anger a significant portion of Elon Musk’s fans.
It remains to be seen whether this apology will satisfy Tesla investors and / or rekindle interest in cryptocurrencies and stocks that act as crypto derivatives such as COIN stocks. However, it seems one thing is certain, more volatility is likely on the horizon with crypto linked assets.
What Analysts Are Saying About COIN Stock
According to the TipRanks analyst rating consensus, COIN stock is considered a moderate buy. Out of 16 analyst notes, there are 11 buy recommendations, 4 keep recommendations, and 1 sell recommendation.
When it comes to price targets, the average Coinbase analyst price target is $ 381.93. Analysts’ price targets range from a low of $ 225.00 per share to a high of $ 650.00 per share.
Final result
By overlaying the Bitcoin price chart over the COIN stock price chart, investors can notice a fairly high correlation between the two.
It is not by accident.
Indeed, investors seem to take into account a strong correlation between Bitcoin prices and transaction volumes for exchanges. Given how new to Coinbase is (the company was only listed on an IPO in mid-April), we have yet to see how trading volumes fluctuate with coin prices. cryptography. For now, it looks like Bitcoin prices will act as an indicator of this key metric growth.
As a result, Coinbase investors should be wary of the high volatility in this sector for now. This appears to be a stock that could be a double, or a big loser, depending on which direction the winds are blowing. Thus, investors can be well served by practicing proper portfolio discipline in sizing positions according to their risk tolerance levels.
Disclosure: Chris MacDonald does not hold any positions in the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained in this document is for informational purposes only. Nothing in this article should be construed as a solicitation to buy or sell securities.
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