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Coinbase (NASDAQ:COIN) is among the largest holdings in my progress portfolio however it hasn’t been simple to carry the inventory during the last 6 months.
The corporate posted an terrible Q1 2022 as a result of crypto bear market and buyers began fleeing for the exits. COIN inventory is down 78% YTD as a result of present crypto bear market.
Nevertheless, I have been a passionate person of Coinbase since 2018 and will not promote a single share throughout this present market crash.
Crypto trades in cycles and proper now buyers are experiencing the way it a crypto winter feels. It does not really feel good in any respect however historical past exhibits affected person holders get rewarded with a lot greater valuations in the event that they merely HODL and do nothing.
On this article, I will reply most of the frequent questions I’ve acquired surrounding the newest quarterly report and clarify my private technique for Coinbase again.
Q1 2022 Was Brutal As a result of The Crypto Market Has Crashed
Coinbase suffered a giant dip in month-to-month transacting customers, buying and selling worth, and belongings on the platform compared to This fall 2021, triggering an enormous 25% selloff after Q1 2022 earnings launch.
Q1 2022 income was an enormous let-down and the corporate misplaced $430 million through the quarter. Each retail and institutional income was down over 50% from This fall 2021.
Coinbase Q1 2022 Key Metric (coinbase.com)
Decrease crypto costs induced a $258 million impairment cost as a result of the SEC requires all corporations holding crypto belongings to incorporate any losses after they fall under their value foundation. Eradicating impairment prices, Coinbase misplaced round $172 million per quarter.
Coinbase lowered its Q2 2022 steering with the expectation of decrease energetic customers and buying and selling quantity.
Coinbase Q1 2022 Buying and selling Volumes (coinbase.com)
Bitcoin costs have fallen considerably for the reason that starting of 2021, which has induced COIN shares to fall. That is utterly regular as Bitcoin enters the 2nd half of its present halving cycle. In reality, Bitcoin has historically fallen as much as 80% through the backside of its bearish cycle. Which means COIN inventory might commerce a lot decrease as we head in direction of the 2nd half of 2022.
Nevertheless, I need to handle a number of explanation why this selloff is unwarranted and the way buyers can revenue as soon as issues flip round.
Coinbase Is Diversifying Into NFTs, Staking, And Derivatives
Coinbase turned 10 years previous this 12 months and is not only a cryptocurrency dealer and change.
In April, Coinbase launched its NFT market to compete with Opensea and generate income from the rising NFT {industry} however initial activity has been slow.
Secondly, 5.8 million Coinbase customers staked their crypto on Coinbase to generate yield with their belongings in Q1 2022. The company added Cardano, the ninth hottest cryptocurrency, to its platform and may enhance person exercise with extra staking merchandise sooner or later.
Thirdly, Coinbase plans to launch crypto derivatives merchandise just like choices buying and selling that permit customers to revenue from brief and long-term crypto value actions. In February, Coinbase acquired FairX to assist ease its transition into derivatives.
This might be an enormous game-changer for Coinbase as a result of derivatives will generate a ton of additional buying and selling income for the corporate.
Coinbase Truthful Money Worth Is Round $43
COIN inventory is presently sitting at some engaging valuations primarily based on the latest selloff. The P/E ratio is simply 3 whereas the money worth per share is $43.
Proper now, Coinbase is being valued at principally its money steadiness with zero regard for its income progress prospects.
We’re presently greater than midway via the present Bitcoin halving cycle at block #736,000. Which means crypto costs will proceed to commerce decrease so be ready for future losses in case you maintain Coinbase inventory.
COIN inventory has traded alongside Bitcoin and crypto costs so we might see Coinbase inventory close to $40 or under by the tip of the summer time. At this level, I need to construct a big place in Coinbase so I welcome decrease costs within the brief time period to revenue massively over the long term.
It is All About The Person Development
Coinbase has 98 million verified customers and people customers will spend some huge cash shopping for crypto as soon as the market picks again up.
Coinbase person progress grew at a 75% CAGR during the last 12 months as the corporate continues to rack up extra person progress regardless of falling crypto costs.
| Quarter | Coinbase Verified Customers |
| Q1 2021 | 56 million |
| Q2 2021 | 68 million |
| Q3 2021 | 73 million |
| This fall 2021 | 89 million |
| Q1 2022 | 98 million |
It is possible that Coinbase will cross the 100 million person mark in Q2 2022 whereas the inventory value continues crashing.
Lengthy-term buyers have a beautiful alternative to accumulate an industry-leading firm with a rising person base at all-time low costs.
On the finish of the day, customers make fintech corporations equivalent to Coinbase priceless. So long as the userbase will increase, I’ll stay bullish on the inventory.
In fact, there are a number of danger elements that buyers must pay attention to.
Threat Components
Competitors is my predominant concern relating to Coinbase. Robinhood (HOOD) launched its crypto pockets and different rivals equivalent to Binance and Kraken might steal market share from Coinbase.
The preliminary Coinbase NFT market hasn’t carried out effectively and it is a chance that Opensea leads the {industry} effectively into the long run.
Many buyers have expressed issues about Coinbase submitting for chapter as a result of operating out of money. The corporate held $6.1 billion in money on its steadiness sheet on the finish of Q1 (together with $180 million in USC and $1 billion in varied crypto belongings).
Additionally, Coinbase filed a shelf registration with the SEC and should must promote inventory with the intention to keep afloat. Coinbase CEO Brian Armstrong denied that the corporate is prone to chapter on Twitter so hopefully the corporate has loads of money to make it via the crypto bear market.
Lastly, I’ve learn a number of issues about Coinbase’s coverage on crypto belongings within the occasion of chapter. It is true that belongings held on Coinbase are technically owned by Coinbase for the reason that firm should report buyer belongings on its steadiness.
Coinbase wrote in its newest 10-Q:
As a result of custodially [sic] held crypto belongings could also be thought of to be the property of a chapter property, within the occasion of a chapter, the crypto belongings we maintain in custody on behalf of our prospects might be topic to chapter proceedings and such prospects might be handled as our common unsecured collectors. (Supply: Coinbase 10-Q)
Brian Armstrong tweeted that that is customary SEC apply and your belongings are protected.
This isn’t a brand new rule however it’s vital to grasp the dangers of holding crypto belongings. If you’re anxious a couple of hack or chapter then merely transfer your belongings off Coinbase into your personal {hardware} or digital cellular pockets the place you management your non-public keys.
Conclusion
Coinbase will battle in Q2 2022 however I anticipate issues to get higher as we head in direction of Q3. The crypto market might backside and crypto shares like Coinbase can be ready for a bullish turnaround.
Coinbase has added a number of new merchandise to maintain its customers glad and stays a dominant drive within the North American crypto {industry}.
COIN inventory stays engaging at underneath $50 although the dangers are piling up. I really consider long-term holders can be rewarded however it’s vital to stay calm and see the massive image.
Cryptocurrency is the way forward for finance and is not going wherever. I anticipate Coinbase to stay a pacesetter within the {industry} for years to come back.
