Over the past year, there has been a crazy amount of selling pressure on Coinbase (COIN) shares, which have dropped 75% from their high to their low. Even investors who were willing to take risks have been hurt by the downward trend. Cathie Wood, an investor in new ideas, recently said that she was giving up because of the SEC investigation. Without a doubt, the SEC’s securities warning is more bad news for Coinbase’s shareholders, who were already in bad shape.
Since Cathie Wood is probably selling her share at a big loss, many investors are probably in a bit of a pickle. In any case, Coinbase stock has already lost a lot more value than Bitcoin and most other well-known cryptocurrencies. Some people were surprised by the fact that the volatility of different crypto assets had increased. The SEC hailstorm that made headlines a little over a week ago could not have been seen by many.
As speculators lose interest, the so-called “crypto winter” is likely to start, so it makes sense to take some profit off the table after the recent relief rally. Even though Cathie Wood is on the safe side, investors who still believe in the future of crypto infrastructure may have plenty of reasons to hold on for dear life (HODL), as meme stock investors say.
In fact, the recent relief rally for risk assets as a whole is a good sign. It’s still too early to tell if Bitcoin’s test of US$24,000 is the start of the end of crypto winter or not. If the reversal of the crypto relief bounce lasts, COIN stock could make the gains in the crypto markets even bigger.
In any case, the high potential rewards come with high risks as well. Even though the price of around $91 and change per share seems good, being singled out by the SEC brings huge risks that are hard to estimate.
It’s hard to put a price on Coinbase stock.
At 3.6 times sales, Coinbase is much less expensive than most defensive value stocks that have gone up in price over the past few months. Even though Coinbase may have made too much money when the cryptocurrency markets were going crazy, it’s hard to say how long its current period of not making enough money will last. Now that the single-digit price-to-earnings (P/E) multiple has gone negative, investors can only look at the price-to-sales (P/S) ratio. For investors who kept their shares because they thought the name was a good value play, the change to a loss has made it even harder to figure out how much the company is worth.
The perfect storm has been made by rising interest rates, a possible crypto winter, and now the SEC getting involved. At the moment, it’s hard to blame Cathie Wood for leaving Coinbase. She may still be optimistic about the future of crypto and the blockchain, but there are other companies that don’t have the same SEC worries.
Most notably, Block (SQ), which used to be called Square, is a fintech with a crypto flavour that Cathie Wood may want to invest more in as the fintech waters continue to dry up. Like Coinbase, Block’s last quarter was hurt by the fact that the price of Bitcoin was going down. In any case, Block’s strong payment businesses mean that it isn’t as dependent on the health of crypto markets as Coinbase is.
After a bad second quarter, there is more pressure on Coinbase stock.
For the second quarter, the company saw a big drop in the prices of cryptocurrencies, which made trading volumes go down a lot. Net revenue dropped by more than 60% to $803 million, and per-share losses for Coinbase came in at -$4.98, which was much worse than the average analyst estimate of -$2.47.
The famous short-seller Jim Chanos saw Coinbase’s crash coming from a mile away. Since around 80% of Coinbase’s income comes from transaction fees, the price of crypto assets is closely tied to the price of Coinbase.
Coinbase Stock Gets Lift From Meme Stock Traders
With Bitcoin’s recent improvement and the wider basket of cryptocurrencies, there is hope that a full-fledged crypto winter can be avoided. During the stock market’s relief rally, there was a rise in speculative activity, and many meme stocks were bought up. Given recent activity on Reddit’s WallStreetBets forum, Coinbase stock seems to be its own meme stock.
Since the news of Coinbase’s partnership with BlackRock (BLK), the stock has gone up a bit. Institutional clients will be able to buy Bitcoin through the platform as part of the deal.
Even though it’s hard to tell where the wild crypto waters will go next, this is good news for investors who have been getting nothing but bad news lately.
Should you buy or sell COIN stock?
Turning to Wall Street, COIN has a consensus rating of “Moderate Buy,” which is based on 10 Buys, 7 Holds, and 2 Sells in the last three months. The average price target of $101.18 means that prices could go up by about 12%. (Check out the TipRanks stock forecast for COIN)
Coinbase is still a high-risk, high-reward play, and investors should expect a very volatile time. Even if crypto continues to do well, Coinbase stock could keep going up, but investors shouldn’t underestimate what the SEC’s involvement means. In fact, Cathie Wood, a risk-taking investor who is still very optimistic about the future of crypto, doesn’t think the stock is worth the risk.
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Disclaimer: The information in this article represents only the writer’s views and opinions, not those of TipRanks or its affiliates. It should only be used for informational purposes. At the time this article was written, the author did not own any of the securities mentioned in it.