I remember Coinbase (NASDAQ:COIN) stock suffered ridicule after its initial public offering (IPO). Investors made fun of how it collapsed 50% right out of the gate. However, they are not laughing now after it bounced in a ferocious rally this month.
So far, it has recovered much of its dignity. I was always bullish about Coinbase’s future prospects, mainly because of the market opportunity it serves.
When discussing the upside potential of COIN stock, we must revisit the crypto argument. There are still way too many skeptics, and therein lies a huge upside potential.
Eventually, all the critics will have to embrace the concept of having electronic forms of wealth. Even Jamie Dimon, the CEO of JP Morgan Chase (NYSE:JPM), will have to change his mind. He can keep saying mean things about cryptos, but the asset class will keep proving him wrong. At some point, Dimon will have to admit defeat.
While cryptos have a long way to go still, they undoubtedly hold a place in the future of finance — and Coinbase is well-positioned to benefit. The positive twist for COIN stock is that the value of Bitcoin (CCC:BTC-USD) doesn’t matter as long people are trading coins.
COIN Stock Is Cheap
Since my last write up in July, Coinbase’s fundamentals have improved tremendously. The price-to-sales (P/s) ratio fell 30%, and the company saw $2 billion in net revenue for the second quarter.
Therefore, it’s not a surprise that the stock also delivered profits. These metric trends should remain consistent for as long as crypto is popular.
If you are a skeptic, this next paragraph is for you. I am not the typical “to the moon” crypto guy. However, I am completely confident that in the future, we will be using less cash and more cryptos.
In fact, I have already transacted on that level with a pay-for-performance approach in some coins and tokens. It was a more convenient way of transferring payments across borders while lowering the transaction fees significantly.
The misconception about crypto that bothers people the most is the “currency” label. They can’t believe something that moves as fast as Bitcoin can be a currency. My retort is simple: Cryptos are not currencies and they don’t have to be — after all, gold isn’t a currency either. They are an investment class that has crushed all others by a long shot in the last decade.
Crypto Is Not a Fad
Moreover, cryptos’ popularity is growing exponentially. The proof is in Bitcoin’s market capitalization, which is quickly catching up to that of gold. It still has a ways to go, but the improvement is tangible.
Similarly, there are rising coins catching up to the original, like Ethereum (CCC:ETH-USD) and Solana (CCC:SOL-USD). Completely rejecting the concept of crypto now will put an investor at a severe disadvantage later.
Digital coins and tokens are absolutely a valid investment thesis now, and will be for a long time to come. Accepting that fact means embracing a rosy future for COIN stock.
It is still new on Wall Street, but the company started nine years ago. While the stock has not always done well, management will earn the respect. All they have to do is continue growing revenues eight times in two years like they just did.
This is not a statistically expensive stock. Owning it for the long term is absolutely a valid thesis.
That doesn’t mean it won’t have ups and downs in the meantime. In fact, the fall from its IPO grace was nothing short of outstanding. COIN stock fans took their time creating a solid base at $210 per share over five months. Usually, those serve as a solid foundation for a recovery.
In the short term, COIN stock will face sellers lurking at and above $340 per share. If and when the stock gets there, these sellers would be trading in the heart of the first week’s price action.
Currently, the bulls are in charge. They proved it on Monday with a rally of more than 8%. This brings the size of the October move to more than 43%.
Temper the Short-Term Enthusiasm
This is an impressive feat for a relatively young stock. However, the breakout arguably started around $280 per share. If that’s the case, then this rally is approaching its target estimate.
Technically, this is where the short-term traders book their profits. This raises the level of difficulty for more immediate upside. Those who want to buy shares may get the opportunity to buy them cheaper this year. Chasing this late in a rally carries a higher risk of short-term disappointment.
Often, stocks that break out this fast like to revisit the neckline. In this case, a better entry for COIN stock would be under $300 per share.
Don’t let this seemingly negative comment cause you grief. I still have a positive outlook on the company and its stock. Ultimately, I believe in its long-term success, but I would expect some downside pressures.
If the markets in general continue to rally, COIN stock can, too. Therefore, it comes down to investor time frames. If I wish to own this stock for decades, then I don’t need to be surgical with my entries. Nevertheless, I prefer avoiding the easy mistakes, and COIN does not currently offer me an obvious point of entry.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.
