With crypto prices falling and competition growing, what’s next for Coinbase?

Cryptocurrency exchange Coinbase Stock (NASDAQ
NDAQ
:COIN) is down almost 27% in the past month after seeing a strong rally in July, although the stock is still down around 74% year-to-date. The recent selloff comes as crypto prices have fallen again, with the Federal Reserve indicating that it will continue its path of higher interest rates, despite a slight slowdown in inflation. The bitcoin crypto has fallen nearly 12% in the past month and remains down 55% year-to-date. Lower prices generally reduce crypto trading activity on platforms such as Coinbase. During the second quarter of 2022, trading volumes on the company’s platform fell nearly 54% to $217 billion, while revenue fell 64% year-over-year to $808 million. of dollars. Moreover, the competition also intensifies while the market is in a down cycle. While Coinbase has focused more on retail traders, who have been sidelined by the crypto crash, rival offshore platforms have attracted more volume from larger traders. For perspective, Coinbase’s market share fell to 6.3% in July 2022 from 10.7% in January, according to data from CryptoCompare.

While it is difficult to plan an entry into Coinbase shares amid market volatility, there are some factors worth considering for potential investors. Things are expected to remain tricky for non-performing assets such as crypto as the Fed continues monetary tightening. However, cryptocurrencies such as bitcoin have shown resilience in the past, bouncing back stronger from big selloffs. We might see it again as the crypto cycle turns (usually two to four years, according to Coinbase). As a business, Coinbase has shown tremendous earnings potential during good times. In 2021, the company’s total profits were $3.6 billion on revenue of approximately $7.4 billion. This could make the title worth a look during the current downturn.

Additionally, through the current crypto bear market, several smaller platforms such as Celsius and Voyager Digital have filed for bankruptcy, while suspending account withdrawals. These developments could help more established and better capitalized players such as Coinbase win over more retail investors as things improve. There could also be benefits for Coinbase in the short term. Ether
ETH
eum – the second-largest cryptocurrency by market capitalization – is set to see a big network overhaul in the coming weeks. This should open up additional commission-related revenue streams for companies like Coinbase, which is one of the biggest players in the Ethereum trading space.

We value Coinbase stock at $120 per share, which is significantly higher than the current market price of $71 per share. See our analysis on Coinbase Valuation: Expensive or cheap? for more details on Coinbase’s valuation. See also our analysis on Coinbase revenue: How does COIN make money? for more details on the company’s main sources of income and their evolution.

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