Key Takeaways:
- Coinbase revenue diversification policy is far from decoupling COIN from BTC.
- The exchange has trouble with regulators, which threaten the company with a lawsuit.
- Recession fears mature, and Coinbase’s quarterly earnings could drop accordingly.
YEREVAN (CoinChapter.com) – Coinbase stock COIN doubled in price year-to-date despite choppy performance and closed the April 12 session at nearly $68.
However, Coinbase exhibits factors contributing to a bearish reversal; here’s why.
#1 Alternate revenue sources have not yet matured
Coinbase gets its revenue from transaction fees on the platform.
The company should profit regardless of whether its clients buy or sell crypto. However, the stock correlates with the Bitcoin price, as shown in the chart below. Thus, when the crypto market falls, so does COIN.
Bitcoin has made double-digit profits year-to-date, and Coinbase stock followed suit.
Meanwhile, the exchange seeks to diversify its revenue streams to avoid turbulence, turning to staking rewards, subscription fees, and institutional services.
The company launched Coinbase Pro in 2018, a platform for more advanced and professional traders that charges a monthly fee based on the user’s trading activity.
The Pro option gives the exchange an alternate revenue stream. Additionally, Coinbase plans to launch a new subscription product called Coinbase Bundle, allowing users to access a curated portfolio of cryptocurrencies for a fixed fee.
Also read: COIN stock risks a 15% drop despite Coinbase expansion to Singapore.
The fee revenue increased approximately 17 times from 2020 to 2022. However, it is still not viable enough to relieve Coinbase’s market dependency.
The exchange also offers staking services for cryptocurrencies, such as Ethereum 2.0, Tezos, Cosmos, and Algorand.
However, according to its latest earnings report, staking revenue represented approximately 3% of the net revenue in Q4, which is nearly insufficient to diversify Coinbase away from crypto volatility.
Thus, while the exchange adopts the mentioned diversification techniques, the results are still far from viable. As a result, Coinbase is still far away from Bitcoin-price independence.
#2 Coinbase in Trouble with Securities and Exchange Commission.
Coinbase got a Wells notice from the Securities and Exchange Commission (SEC) in late March. After a cursory investigation, the regulator took issue with the staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet.
In short, a Wells notice is how the SEC warns a company that the latter is under recommendation for enforcement action after possible violations of securities laws. It is not a formal charge or lawsuit but can lead to one.
Meanwhile, the exchange has repeatedly expressed its readiness to work with the SEC and declare all the necessary information.
Coinbase chief executive Brian Armstrong asserted that digital assets listed on the exchange went through a “rigorous” review and added that “the SEC simply has not been fair or reasonable when it comes to its engagement on digital assets.”
Also read: Is Russia Becoming an “economic colony” of China? CIA director William Burns thinks so!
Our S1 clearly explained our asset listing process and included 57 references to staking. Coinbase runs a rigorous asset review process and has rejected more than 90% of assets that have applied to be listed on the platform.
noted Armstrong in a recent tweet.
A Wells notice does not equal a lawsuit. However, if a prosecution follows, Coinbase stock might tumble.
#3 Expected drop in quarterly revenue amid growing recession fears.
Twenty-two analysts from CNN, offering 12-month price forecasts for Coinbase Global Inc, have a median target of $61.5 for the exchange’s stock, an 11% drop from the current price. The higher end of the expectations stood at $200, while the lower end rested at $27.
Notably, a solo COIN rally is unlikely if Bitcoin progress stumbles.
Additionally, the latter depends on the overall climate of the equities market due to the high correlation with risk-on assets. Thus, if the market goes through a recession in the current year, Bitcoin and COIN would follow the equities’ bearish lead.
According to the latest statistics, equity shorts have hit a record high amid bearish expectations. However, the CPI report on Wednesday showed a slowdown in inflation growth, which could lead to a more dovish approach from the Fed and mean recovery for stocks.
Also read: Former US President Donald Trump Sues Ex-Lawyer, Michael Cohen, For Over $500M.
However, expectations remain cautious ahead of the Federal Open Market Committee (FOMC) meeting on May 3.
