The market debut of Coinbase (NASDAQ:COIN) stock looks to have been last call at the cryptocurrency party.
In the days leading up to the cryptocurrency exchange’s initial public offering (IPO) on April 14, cryptocurrencies ranging from Bitcoin and Ethereum to Litcoin hit all-time highs.
By the time Coinbase employees were spraying each other with champagne outside the Nasdaq MarketSite in New York City on the day of the IPO, Bitcoin’s price had peaked at $$63,729.50, according to data from Coin Metrics.
Since the Coinbase IPO, which crypto bulls called a “watershed moment” for cryptocurrencies everywhere, a nasty hangover has set in across the digital coin realm.
Coinbase’s share price is down since its first day of trading, hovering around $297 a share. Analysts are wondering aloud if the Coinbase IPO represented the peak of the cryptocurrency craze and if it will be all downhill from here. And, if true, where does this leave cryptocurrency exchange Coinbase?
Bulls, Bears, and COIN Stock
Crypto lunacy aside, Coinbase went public with a very strong balance sheet. The Wilmington, Delaware-based company reported revenue growth of 844% year-over-year for the first quarter of 2021 as its sales swelled to $1.8 billion, compared to first quarter 2020 revenue of only $191 million.
Coinbase, which earns revenue from trading fees charged to buy and sell cryptocurrencies such as Bitcoin on its exchange, has forecast sales for its current quarter of between $730 million and $800 million. The company has definitely been making hay while the sun shone bright.
However, there is a flip side to this coin (pun intended). While Coinbase made out like a bandit during the cryptocurrency bull run of 2020 and leading into 2021, the company’s revenue can take a sizable hit when investor sentiment turns bearish and people stop trading Bitcoin and other digital assets at such a brisk pace.
It’s worth pointing out that Coinbase’s sales were cut in half (down 50%) during the cryptocurrency bear market of 2018, and they didn’t start to recover until last year.
The Wild West
Coinbase’s fortunes are bound tightly to cryptocurrencies and to Bitcoin in particular. While cryptocurrencies are starting to gain mainstream acceptance, digital coins still have a long way to go before they are used broadly by people in their everyday lives.
For every person who heralds cryptocurrencies as the greatest store of value since the U.S. dollar, there is a seemingly endless line of critics and skeptics who claim that cryptocurrencies are nothing more than a speculative bubble that will eventually burst and leave investors in tears.
The wild fluctuations in the price of Bitcoin and other cryptocurrencies are proof that the market is still maturing and highly volatile.
Coinbase isn’t the only stock whose price swings are tied to the movements of the cryptocurrency market. Other stocks such as Riot Blockchain (NASDAQ:RIOT) and Marathon Digital Holdings (NASDAQ:MARA) rise and fall with the price of Bitcoin and Ethereum.
Investors who take a position in COIN stock at this point have to prepare themselves for a potentially wild ride moving forward.
Go Slow With COIN Stock
It’s still early days for COIN stock. The cryptocurrency exchange has not been a publicly-traded company for a month yet.
The company has had some success over the past year and might make a good investment over the long term, but in the short term, there’s no denying that Bitcoin and the entire cryptocurrency sector have experienced a pullback.
Whether the retrenchment worsens or reverses remains to be seen, but investors should be cautious with Coinbase stock and all cryptocurrencies for that matter in the current environment.
Investors who are eager to get exposure to the cryptocurrency market and see a buying opportunity with prices depressed should proceed by taking a small position in COIN stock.
Wait and see how the shares and the broader digital coin market perform and grow your position slowly over time. Most importantly, be ready to sell quickly if things worsen for Coinbase and the digital assets it depends on.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.
