Key Takeaways:
- Coinbase stock declined over 50% since April, due to hightened Bitcoin correlation.
- Some experts see it as a positive factor.
- Coinbase exchange plans to pursue Mergers and Acquisitions activity.
- The exchange’s user base is likely to expand in the coming years, benefiting the company’s revenue and stock price.
- Hightened interest from institutional investors makes COIN a profitable investment in 2022.
YEREVAN (CoinChapter.com) – Shares of Coinbase, the fifth-largest crypto exchange globally, could grant investors high returns in 2022, despite the choppy performance in Q4 2021. In detail, Coinbase saw its stock COIN dump over 50% since the Initial Public Offering (IPO) on Apr 14, 2021. It traded at $204 a share in the European session on Feb 11.
Coinbase stock in trouble?
Intuitively, Coinbase’s revenue should depend on the overall trading volume, meaning the exchange would collect transaction fees and subsequently benefit regardless of whether clients choose to buy or sell crypto. However, researchers at Khaveen Investments found a high correlation between COIN price and Bitcoin (BTC) value.
For example, researchers believed that the 5,694% revenue increase in 2017 was due to Bitcoin’s 1,271% price jump in the same period. Moreover, the uncanny correlation has been visible on the charts since the IPO.
Also read: Coinbase stock emerges as Bitcoin's greatest diversifier; here's why.
COIN moved in confluence with the BTC price action, duplicating its tops and bottoms throughout three quarters. Additionally, in the Q3 report, Coinbase executives admitted that the confluence could be toxic for COIN, the platform’s users, trading volume, and revenue.
Not all bad for COIN
However, some experts believe that crypto volatility could play to Coinbase’s own interests. For instance, Stephanie Link, the chief investment strategist of Hightower Advisors, commented on her decision to buy COIN stock in Nov. 2021.
It’s hard to ignore companies that are investing in crypto. It’s not just PayPal, Square, and Tesla. […] I wanted to have some exposure. The Q3 was terrible, but who doesn’t know that prices sell in the summertime? But they got it higher!
said the executive.
Also read: Coinbase is making a foray into the NFT domain; marketplace to launch soon.
Moreover, the company reported the issuance of $1.5 billion in debt in Sep. 2021 for “general corporate purposes, including investment in product development and acquisitions.” The number could be alarming for investors, as it rates high against the net cash position of $2.3 billion.
However, analysts suggest a positive outcome for Coinbase in 2022, and here’s why.
Mergers and Equisitions (M&A) Activity
In detail, mergers and acquisitions (M&A) are transactions in which the ownership of companies, other business organizations, or their operating units are transferred or consolidated with other entities.
It is common for technology businesses, where the sellers have a hard time strengthening their business and rely on the buyers to supply the necessary growth. Thus, the buyer (potentially Coinbase) would benefit by gaining access to new products and markets.
Coinbase ready to dive in?
Emilie Choi, the President and COO of Coinbase Global, highlighted the company’s intent to pursue further integration into M&A activity, which explains the $1.5 billion debt.
A secondary goal for us is about M&A pipeline and or partnerships.
said the COO.
Thus, the debt issuance is mainly due to “including its customer fund obligations under its liabilities.” Furthermore, Khaveen Investments called the company’s financial position “strong” and capable of supporting the pursuit of acquisitions.
Also read: Coinbase stock falls 4.4% after the exchange buckles under SEC pressure.
M&A Activity could further propel the company and, by extension, its stock COIN in 2022. Additionally, investment mogul JPMorgan predicted a “big year” for M&A, given that it “shattered records” in 2021 with $5.9 trillion in announced volume.
Expanding User Base
As mentioned, Coinbase is the fifth largest crypto exchange globally, with $4.3 billion in daily trading volume. Additionally, it is the only public-listed crypto exchange.
Coinbase, like other crypto exchanges, is likely to benefit as more people become interested in trading cryptocurrencies. Several studies agree with the conclusion, including a survey from Pew Research Centre.
The survey focused on the United States and confirmed that 86% of Americans are aware of cryptocurrency, but only 16% indicated that they have invested in it. In contrast, the 2015 statistics show that 48% have heard of cryptocurrency, and only 1% either traded or used it.
Also read: COIN jumps even as Coinbase comes under scrutiny for hacked crypto accounts.
Furthermore, the company aims to grow its user base. In Q3, Coinbase reported a verified user base of 73 million, constituting a 109% increase year-to-year. Additionally, the Monthly Active User (MAU) growth stood at 164% in the same period.
Meanwhile, the ratio of MAU vs. the total number of registered users grew by over 26%. Khaveen Investments expects the growth to continue over the next three years, which would further contribute to Coinbase’s transaction volume growth.
Growing interest form institutional investors
As a leading crypto exchange, Coinbase clients include several institutional investors, in addition to millions of retail investors. Its wide range of customers includes hedge funds, family offices, principal trading firms, and financial institutions.
Thus, a growing number of potential investors could assist Coinbase, adding to the annual revenue and growth of COIN. As of 2021, several financial institutions confirmed the increasing interest.
For example, financial giant Goldman Sachs conducted research based on 150 family offices. Only 15% of the respondents were invested in the crypto market. However, 45% were interested in digital assets as a hedge against “higher inflation, prolonged low rates,” and other repercussions of the “unprecedented global monetary and fiscal stimulus” following the pandemic.
Furthermore, Coalition Greenwich found that 7 in 10 institutional investors plan on dipping their toes in digital assets in the future. However, the study cited price volatility as one of the main barriers for institutional investors.
Also read: Bitcoin market shares increased correlation with other risk assets, says Bank of America.
As the crypto market expands, big players deeply invested in digital assets would rise in confluence. Coinbase stock lost over 50% of its value since the IPO but aims to recover in 2022, along with growth in institutional investors, retail clients, and pursuit of M&A Activity.
