Is Coinbase an Undervalued Investment?

The current cryptocurrency bear market has been devastating to both digital assets and companies in the crypto industry. Coinbase, the most prominent publicly-traded cryptocurrency company, is no exception - its COIN stock is down from November 2021 high of $357 to $38, a near-90% decline. However, COIN may be undervalued at these low prices and a solid bet for the next bull market. 

When Coinbase went public in 2021, it was one of the most hyped IPOs of the year. For the first time, investors could get exposure to one of the top cryptocurrency exchanges through the regulated stock market. There was speculation that the company could be immediately worth $230 billion, only $25 billion less than telecommunications giant AT&T. The entire cryptocurrency market was in a bull rally, and optimism was typical.

After reaching a high near the bull market's peak in November 2021, Coinbase stock has plummeted and is currently trading near its all-time low. 

Even though Coinbase has fallen to a more reasonable valuation, there are several reasons to be bullish about the stock going into the next bull market. First, as the below Tweet points out, Coinbase’s revenues are up 600%, users are up 500% to 100 million, and assets on the platform are up nearly 1000% since 2018. Additionally, the company has large cash reserves of around $5 billion with around $3.6 billion of debt, meaning they have enough money to survive a relatively long bear market.

Arguably, Coinbase’s most promising revenue stream lies in its staking product. On the exchange, users can stake assets like Ethereum, Cosmos, and USDC to earn an interest rate. The typical rate for these services from staking providers like Lido or Rocketpool is close to 10%, but Coinbase charges an exorbitant 25%. At first glance, this does not seem to make sense, but Coinbase can charge a premium for investors who prefer to keep their coins on an exchange or do not know how to move them to their wallet.

Coinbase’s proven safety and security also make it poised to increase in popularity. Since the collapse of FTX, exchange reputations have been scrutinized and Coinbase has come out unscathed, going so far as to prove its reserves. As the exchange increases in popularity, so will its revenue from exchange fees. Other potential revenue streams for Coinbase include its venture arm, Coinbase Wallet, and its incredibly underwhelming NFT marketplace. 

Although Coinbase has a lot of positive momentum, there are still some reasons to stay away from the stock. Mainly, the company is burning money every quarter and struggling to profit. This is largely due to the bear market and consequently decreased trading volumes, but regardless, it is not a positive indicator, especially when the vast majority of their revenue currently comes from trading fees. In addition, Coinbase could be negatively affected by regulation from the SEC, and they have been under investigation in the past. As the largest US-based cryptocurrency company, they are under extra scrutiny from regulators and would likely be the first company impacted by unforeseen regulations.

Overall, Coinbase stock has pros and cons that should impact buying decisions. On one hand, their focus on staking and easy onboarding for the average investor could provide a lucrative revenue stream in the future, and their cash reserves mean they will not go bankrupt anytime soon. On the other hand, their business is currently tied to trading volume, which will be down for the remainder of the bear market with no end. Like any digital asset, buying COIN stock should be done with caution and a long-term outlook.

By Lincoln Murr

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