Today I will start with the conclusion. Seeing how well cryptocurrencies are doing, the smart decision would be to own Coinbase (NASDAQ:COIN) stock for the long term. There hasn’t been an opportunity like crypto in ages. This translates into great upside potential in Coinbase stock from the get-go.
Demand for e-coins is not letting up, so the opportunities ahead for companies who deal with them abound. The king of crypto remains Bitcoin (CCC:BTC-USD), so the bulk of the pro-Coinbase stock arguments currently lie within that scope.
First let’s make the argument for the need of e-coins. For a long time, people have been skeptics about governmental controls. This used to be the prevalent mostly aspects in autocracies, but now it’s everywhere. They made movies out of how some countries did not allowed its people to accumulate wealth.
Although movies are almost never 100% accurate, within every story lies some truth. When you restrict freedoms, the people seek ways of circumventing their hurdles. Bitcoin and other cryptocurrencies like it empower us to own assets that governments can’t influence. Having a wealth storage solution out of the reach of the government makes sense.
I don’t mean this from a “cheating” the government perspective. But rather from the point of view of shielding our wealth from central bank actions.
Cash Is Dying
This need to divest from government-controlled currencies is now worldwide. Recent events and the central bank policies are driving everyone to seek to invest in e-coins. And Coinbase is a major place where this mad rush is happening.
The value of cash is under assault from the loose monetary policies. All major governments are doing it, and to make matters worse they are also looking for more fiscal spending. In the U.S. alone, this administration is already spending $3.4 trillion this year. They are currently trying to pledge $2 billion more. There is an insatiable appetite to spend and expand debt. This doesn’t usually end well for centralized currencies.
These loose money programs kill cash but don’t affect cryptocurrencies. That fact actually acts as an inverse driver of value in them. It wasn’t long ago that a billion dollars meant something. After the 2008 global financial collapse, the U.S. unfolded TARP to bail out the economy and it only cost $475 billion. At the time the amount was massive and it wasn’t that long ago. Now, the politicians’ opening bids are in the trillions. Who knew we were this rich? I am being sarcastic of course.
Bitcoin Is Following in Gold’s Footsteps
It used to be that to hide from this hyper-inflation, big money rushed into gold. For the same reason, now they can also hide in Bitcoin. Coinbase is in the thick of this coin rush movement, so it’s going to flourish for years. After all, it allows for the average person to dip into cryptos more easily.
Investors should ease into it because unicorn companies like Coinbase sometimes perform poorly after the hype. It’s always a good idea to take positions into an investment in tranches. Small bites make for small mistakes even in great companies.
Those who piled into Coinbase stock at the open are now in a 20% hole. It’s not fun to initiate a position and see it sour badly within hours. Being in it for the long haul could be consolidation to some but it’s not my cup of tea. Most of us want to get off on the right foot and see greens right away. Immediate deep crimson stats are awful.
Could this fad fizzle? The Crypto investment in general is absolutely not a fad. Some investments within it could fail, but Coinbase is coin agnostic. Whichever ones are popular, it’s there to profit from them. Given the young age of this phenomenon I bet the company could use to extend its earnings reach.
There will be new services and applications coming that don’t even exist yet. The Coinbase business is now at the stage where stock trading services were on month one. They probably only had one asset class they handled with limited scope. Now they can service hundreds of asset classes so the opportunities are boundless.
The Myth of the Coinbase Stock Valuation
Some of the expert opinion are stubborn and repeat common mistakes. Coinbase stock hadn’t been trading for even a month yet and I already see complaints about its valuation. Some pundits are forecasting that it can never grow into its profits expectations.
In their early stages, growth stocks are not supposed to skimp. They must spend aggressively to grow as fast as possible. Amazon (NASDAQ:AMZN) is the perfect example of this. Even after a decade of 30% yearly growth, there are still experts who insist on it having better margins.
The Coinbase profits will come later. For now it’s cranking on all cylinders. Management should not choke the momentum for the sake of a prettier metric. The only metric that matters is price-to-sales (P/S) and it’s now 50. That’s twice as expensive as Tesla (NASDAQ:TSLA) and 60% cheaper than Zoom (NASDAQ:ZM) at its height last year. From those two broad stroke, I would state that there isn’t an obvious bloat situation.
A steep growth ramp can fix the problem of a high P/S. They have the team and a strong board to do it. Doubters should check some of the statistics on their website in giant font. They have more than 50 million users working with $223 billion in assets there. Furthermore, Coinbase is not bound by geography — they are in over 100 countries. There is no mystery why the COIN stock is attracting investors. It’s not all hype and there is a massively real opportunity unfolding.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.