Queen Piece (NASDAQ: currency)One of the world’s largest cryptocurrency exchanges, took investors on a wild ride after its direct listing last April. It went public at a reference price of $250, hit an all-time high of $429.54 on its first trading day, and eventually closed at $328.28 a share.
Today, Coinbase is trading at mid $230. The initial enthusiasm for the market faded Bitcoin‘s (CRYPTO: BTC) Gains have stalled, other speculative cryptocurrencies have lost steam, and a growing number of regulatory threats have cast a grim cloud over the emerging industry.
But have investors become too pessimistic about the high-growth cryptocurrency stock? Let’s compare bear and bull cases to find out.
What will the bears tell you about Coinbase
Bears dislike Coinbase for three main reasons: its unexpected growth, regulatory threats, and competitive challenges.
Coinbase’s growth rates are definitely amazing. Its revenue rose 144% to $1.28 billion in 2020, then rose 671% year-over-year to $5.34 billion in the first nine months of 2021. It posted a net profit of $322 million in 2020, and that number jumped to $2.78 billion in The first nine months of 2021.
However, Coinbase generates nearly all of its revenue from cryptocurrency trading, and its growth is linked to the volatile market interest in bitcoin, Ethereum (CRYPTO: ETH)And Dogecoin (CRYPTO: DOGE)and other major cryptocurrencies. Over the past three months, the market’s appetite for these cryptocurrencies has waned significantly as rising inflation and interest rates cause investors to dump more speculative investments.
This sale challenged the notion that Bitcoin and other cryptocurrencies were effective hedges against inflation. It also caused Coinbase’s trading volume and monthly transaction users (MTUs) to drop sequentially in the third quarter. Coinbase said crypto market conditions “improved measurably” in the fourth quarter, but we won’t know if it has actually stopped that bleeding until it releases its fourth-quarter earnings report in early February.
This slowdown makes it hard to believe much in analyst predictions for Coinbase. Currently, they expect its revenue to rise 467% in 2021 and fall by 2% against tough comparisons in 2022, but these estimates may become obsolete due to the sudden rise or fall of cryptocurrency prices.
Meanwhile, regulators are tightening the screws on the cryptocurrency market. Last September, the Securities and Exchange Commission (SEC) forced Coinbase to cancel Lend, a planned feature that would have enabled its users to lend their coins in US dollars (a stable currency pegged to the US dollar) to get interest. The Securities and Exchange Commission (SEC) is also widely expected to introduce new regulations for cryptocurrency, digital currency exchanges, and crypto-mining companies in the near future.
These tougher regulations could reduce cryptocurrency prices, disable some features of Coinbase, or force it to increase its operating expenses. To make matters worse, a growing number of competitors – including to forbid‘s (NYSE: SQ) Cash and . app Robinhood Markets (NASDAQ: HOOD) It could attract more cryptocurrency traders as the market stagnates or contracts.
What will the bulls tell you about Coinbase
Bulls generally love Coinbase for three reasons: the long-term growth potential of the cryptocurrency market, the expansion of its ecosystem beyond cryptocurrency retail, and its surprisingly low valuations.
For example, ARK Invest’s Cathy Wood — which holds Coinbase as the top investment in three of its major ETFs — believes that the price of Bitcoin will rise from around $40,000 today to more than $560,000 by 2026. If that really happens, it could Coinbase can make multiple gains. the next few years.
Coinbase is also gradually diversifying its business through subscriptions (for commission-free trades, priority customer support, and account protection for up to $1 million), new blockchain-based reward programs, the upcoming NFT Marketplace, and other decentralized finance products. This expansion can diversify its revenue sources and attract more users.
Coinbase shares are currently trading at 29 times forward earnings and less than seven times next year’s sales. These valuations are low for its growth, but they also reflect market concerns about its future. But if you are optimistic about the long-term growth of the cryptocurrency, blockchain, NFT, and DeFi markets, this might be the perfect time to invest in Coinbase.
Which argument is more reasonable?
Coinbase will likely continue to grow, but I believe there are better crypto investment options for aggressive and conservative investors.
Aggressive investors might be better off buying cryptocurrencies outright, which could yield even greater gains without the burden of Coinbase’s operating expenses. More conservative investors should stick to better diversified companies like Block, which has a lot of exposure to Bitcoin but is not an all-out game in the cryptocurrency market like Coinbase.
So while I admire Coinbase as a company, I will not invest in it now. The market will likely continue to label it a riskier growth stock this year – and that designation could hurt its growth as interest rates gradually rise.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.