Shares of Coinbase International (NASDAQ:COIN) fell by 19.9% in December, according to data from S&P Global Market Intelligence. This transfer was triggered by weak pricing traits throughout the cryptocurrency market, however that correlation seems like a mistake.
It is true that main cryptocurrencies suffered comparable declines in December. Bitcoin (CRYPTO:BTC) fell by 18.4% whereas Ethereum (CRYPTO:ETH) misplaced 16.4%. The ups and downs of their chart traces had been bunched tightly collectively:
That is sensible at first look. Decrease cryptocurrency costs have to be unhealthy information for a corporation that makes a speciality of digital asset buying and selling providers, proper? Due to this fact, Coinbase inventory ought to fall when inflation considerations and sluggish progress on cryptocurrency regulations weigh on these property.
Nevertheless, that straightforward evaluation leaves out one necessary element. Coinbase holds $330 million of bitcoin and $137 million of ether tokens on its stability sheet. That is only a small fraction of the $6.4 billion in money equivalents it has on its books, to not point out its $47.4 billion market cap. The funding worth of Coinbase is extra carefully associated to cryptocurrency buying and selling volumes than to digital asset costs.
The variety of Ethereum transactions was solely 5% decrease in December and Bitcoin’s quantity fell by 8%. These declines had been notably smaller than Coinbase’s share worth drop.
The cryptocurrency sector continues to exhibit roiling volatility and skyrocketing buying and selling volumes. Take into account that the buying and selling platform collects buying and selling charges from these on each the shopping for and promoting sides of the method. A full-blown crypto market panic would generate tons of cryptocurrency gross sales, pouring buying and selling charges into Coinbase’s pockets.
This firm, in brief, is positioned to be a winner in each bullish and bearish digital asset markets. It’s going to solely lose if merchants and buyers lose curiosity in cryptocurrencies and transfer their investable money into property similar to shares, bonds, actual property, artwork, or commodities as a substitute. Even then, Coinbase would acquire buying and selling charges as these prospects unload their tokens, creating a minimum of a short-lived income spike.
I anticipate Coinbase to go away analysts and buyers flat-footed in February when it delivers its fourth-quarter report. In the meantime, the inventory has plunged to 46% under its 52-week highs, and a bargain-bin valuation of 4.5 instances free cash flow.
In my eyes, the shopping for window for Bitcoin stands vast open proper now. Bitcoin and Ethereum could rise or fall in 2022 and past, maybe being pushed out by newer, extra subtle blockchain networks. Both method, Coinbase seems like a winner at its present unnaturally low valuation.
This text represents the opinion of the author, who could disagree with the “official” suggestion place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis — even certainly one of our personal — helps us all suppose critically about investing and make choices that assist us develop into smarter, happier, and richer.