Coinbase Thinks Crypto Trading Will Surge Like the Internet

Coinbase (NASDAQ:COIN) reported on Nov. 9 with its quarter three earnings report that it hopes that crypto trading will grow just as the internet grew. As a result, COIN stock might eventually rebound as the level of trading increases.

A Bitcoin rests on top of a computer with the Coinbase (COIN) logo and a trading chart.
Source: Nadezda Murmakova / Shutterstock.com

The report has a very interesting graph on page 3  showing the historical similarities. It shows the growth of crypto trading vs. internet adoption over periods that are 24 years apart.

The graph lines are almost identical in terms of the growth of adoption of crypto vs. the internet. It was put together by the World Bank and crypto.com.

The point is that cryptocurrency is here to stay, just like the internet. The graph shows that internet adoption started in 1990 with 5 million users. Then it grew over 10 years to almost three-quarters of a billion by 2001. By the end of 1998, eight years after it started, there were 300 million users

The same thing started in 2014 with crypto adoption and grew to about 300 million users within eight years by the end of 2021.

Where This Leaves Coinbase

Coinbase says in its letter that the rate of crypto adoption is accelerating, just as internet adoption grew in the 1990s. Here is what the company concludes:

We can observe the beginnings of this shift with the dramatic advancements in crypto participation in 2021. Total crypto market capitalization at the end of Q3 was ~$2.0 trillion, up from ~$800 billion at the end of 2020.

In other words, crypto trading is picking up quite dramatically. Growing from $800 billion to $2 billion in the space of three quarters shows that crypto participation is accelerating and asset values are rising quickly.

The bottom line is that this fast growth is mirroring the growth of the internet in the 1990s. Coinbase figures that this will feed into their growth over the long term. This is despite the high volatility in crypto prices and trading, especially as seen from the company’s latest report.

For example, revenue fell from $2.033 billion in Q2 to just $1.235 billion by the end of Q3. As a result, the company’s profits fell dramatically.

Moreover, net income was $1.6 billion in Q2 and it dropped abruptly to $406 million by Q3. In addition, Coinbase’s EBITDA (earnings before interest, taxes, depreciation, and amortization) tumbled from $1.15 billion in Q2 to just $618 million in Q3.

So, I suppose you can see why the company is trying to focus on the long-term secular trends. The reason is the short-term results are very volatile. Their hope is that over time the volatility will trend higher and higher.

What To Do With COIN Stock

The most logical conclusion from this is that if you want to own COIN stock just make sure to hold on for the long term. That way your ownership in COIN stock will reflect the long-term trend in crypto adoption and asset price increases.

That way the value of COIN stock can rise, albeit in a jumpy fashion due to the volatility in crypto prices. For example, recently the stock peaked on Nov. 9 at $357.39. But by Nov. 29 it closed at $320.35.

However, the previous high of the stock was on Aug. 9 at $280.47. So in the past three and a half months, it is up over 13%. However, COIN stock went public in April and started trading at around $328 per share.

Therefore, this shows the volatility of COIN stock. Over time, as crypto asset values and adoption mirror the accelerating growth of internet adoption, the stock will likely move up in tandem. But investors should be quite aware that it will be a bumpy ride.

On the date of publication, Mark R. Hake did not own any security mentioned in this article, directly or indirectly. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com  Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guidewhich you can review here.


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