Cathie Wood is the matriarch of Wall Street. She delivers results for her clients while doing so in an ethical manner. Even if you’re not a money person, you got to respect Wood. Despite my reverence, though, I’ve got to question her decision to buy Coinbase (NASDAQ:COIN).
Yes, COIN stock is on discount but not all markdowns are worth considering.
Let’s back up a step. Technically, I’m referring to Barron’s post on May 21, which revealed that Wood’s ARK Invest fund “snapped up more than 1.2 million additional shares, lifting its total holdings by more than 40% to 4.2 million shares.”
Most of the shares went to the fund’s flagship ARK Innovation ETF (NYSEARCA:ARKK).
On the surface, I can understand why Wood jumped on the Coinbase dip. After all, the Oracle of Omaha Warren Buffett once stated in part, “be fearful when others are greedy and greedy only when others are fearful.”
Well, I think we can safely say that there’s a lot of fear going on in the crypto space. Therefore, if we apply Buffett’s words literally, now is the perfect time to invest in Coinbase stock, but is it really?
Take it from a cryptocurrency advocate and investor. I’ve gone through multiple boom-bust cycles with this temptress known as Bitcoin (CCC:BTC-USD).
As I shared with the InvestorPlace audience, I’m mortgage-free because of cryptocurrencies, and now I’m on the cusp of being able to buy back the cryptocurrencies I used to pay off my house.
Seriously, I should have had my own crypto research project. I could have told you when to get in and, more importantly, when to get out. Because that’s where the problem with cryptos and by logical deduction, Coinbase stock lies.
Too many people gambled on fantasies rather than realities.
Coinbase Is a Long-Term Investment That You Can Wait on
Frankly, the online publishing industry is ill-suited for cryptocurrency coverage. Editorial staffs must schedule story assignments, submitted works must undergo an editing process and once everything looks kosher, the piece goes live.
But the challenge here is by the time crypto-related content goes through this normal procedure, everything could have changed. Indeed, the narrative for Bitcoin took only an hour or so to spark the negativity that it did.
That segues into another point about virtual currencies — you’ve got to stay agile. This is a sector that will humble as quickly as it crowns you a genius. Something like Coinbase stock is especially at risk because it’s an equity unit that follows traditional market rules, yet is inextricably tied to an unprecedented, decentralized platform.
This leads me to one hard conclusion: Coinbase stock is a long-term investment. That doesn’t mean you should buy shares today.
Given the extreme velocity of Bitcoin’s correction, we can reasonably surmise that it’s going through the typical process of a bear market bust cycle. You can read about the various emotional ranges on the link provided but I don’t think that we’ve yet to reach capitulation. If we haven’t reached capitulation, the market has yet to find a bottom, not even close.
While I don’t have proof, some compelling evidence suggests that market cycles work through natural sequences. One of the most powerful is the Fibonacci sequence. From Bitcoin’s peak price of approximately $64,529, here are the numbers to watch.
- 8% retracement: $39,879
- 50% retracement (an “unofficial” Fib level): $32,264
- 2% retracement: $24,650
- 6% retracement: $15,229
Interestingly, when the Nasdaq Composite index hit a weekly average high of nearly 4,915 points during the euphoria of the 2000 tech bubble, it eventually found a bottom at just under 1,140 points, a 23.2% decline.
Therefore, I see the bottom of Bitcoin at around $15,000, which means theoretically, Coinbase stock has much more to fall.
You Got to Know the Game
One of the unsavory elements of the crypto game is the proliferation of narrative frontrunners. When you hear talk about Bitcoin killing the central banks, the only thing you should do is run. Nothing is more dangerous than believing an idea that has no fundamental merit.
Essentially, people got gamed. Personally, I thought that Bitcoin was going to $100,000 earlier this year, but when BTC struggled, that was when I had doubts. So I made sure to cash out a good chunk of my portfolio because I knew that no market is immune from the treachery of human emotions.
As harsh as this correction is, it’s a lesson. Never believe that any asset is different, whether you’re talking Bitcoin, real estate or used car prices. Nothing can run up forever.
But if you’re going to ignore this teaching moment, for goodness’ sake, don’t rush into Coinbase stock before performing due diligence. With the equity unit so tied to Bitcoin’s fortunes, this is not the time to bet the house on it.
On the date of publication, Josh Enomoto held a LONG position in BTC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
