The country’s top cryptocurrency trade remains a hot topic.
Coinbase is growing like a weed, but its stock is reasonably valued.
It impressed buyers with a stable second-quarter report, however a potential SEC lawsuit dampened that enthusiasm.
It might be smarter to directly purchase cryptocurrencies or invest in a more diverse fintech company.
Motley Fool Issues Rare “All In” Buy Alert
Coinbase (NASDAQ:COIN) has been a hot topic over the previous month. The cryptocurrency exchange provider’s stock rallied in mid-August after its huge earnings beat, whilst rising prices for Bitcoin (CRYPTO:BTC), Ethereum (CRYPTO:ETH), and other cryptocurrencies amplified these gains.
El Salvador’s adoption of Bitcoin as one of its national currencies in early September attracted even more bulls, however the abrupt threat of a lawsuit from the Securities and Exchange Commission (SEC) ended that rally. Let’s unpack all these events, and see how they have an impact on Coinbase — and if its stock is nonetheless a worthy investment.
It’s nonetheless producing jaw-dropping growth
Coinbase owns the biggest cryptocurrency change in the U.S. It allows investors to buy a wide range of cryptocurrencies, keep them in online wallets, and link their crypto balances to debit cards. It additionally processes cryptocurrency repayments for organizations and gives a digital stablecoin referred to as the USD Coin, which is pegged to the cost of the U.S. dollar.
Coinbase generates most of its income from transaction fees. Its income rose 144% to $1.28 billion in 2020, then skyrocketed 969% year over year to $4.03 billion in the first half of 2021. It ended the second quarter with 8.8 million monthly transacting users (MTUs), up from 6.1 million MTUs in the first quarter and 1.5 million MTUs a year ago.
Coinbase’s average buying and selling volume jumped 142% to $193.1 billion in 2020, however hit $335 billion and $462 billion in the first and second quarters of 2021, respectively. Half of its trading quantity came from Bitcoin and Ethereum in the 2nd quarter, whilst the rest came from different cryptocurrencies.
Coinbase did not supply any guidance for the rest of the year, because its growth is tethered to unstable cryptocurrency prices, however it envisioned it would end the year with a midpoint estimate of 7 million MTUs.
Wall Street expects Coinbase’s income to rise 432% this year, which seems to recommend its stock is truly undervalued at 10 times this year’s sales. Coinbase is additionally firmly profitable, and it trades at just over 50 times forward earnings.
Bitcoin’s El Salvador rollout
El Salvador’s adoption of Bitcoin was surprising because it wasn’t suffering from the rampant inflation related with many other Latin American countries. Instead, El Salvador largely stabilized its financial system and inflation rates via adopting the U.S. dollar as its national currency two decades ago.
El Salvador will still receive payments in U.S. dollars alongside with Bitcoin, however the authorities claims Bitcoin will limit the country’s banking charges and assist it attain more unbanked individuals.
Coinbase generated 76% of its income in the U.S. and the last 24% in Europe last year, so the El Salvador news will not directly have an impact on its business. However, El Salvador’s pass will indirectly assist Coinbase by boosting Bitcoin’s price, and it is already sparking rumors that other nations — particularly El Salvador’s inflation-stricken neighbors — should follow its lead.
The SEC lawsuit
On Sept. 8, Coinbase stated it had received a Wells notice — which expresses a regulator’s intent to sue a company — from the SEC concerning Lend, an upcoming interest-bearing feature for its crypto platform.
Lend will permit Coinbase’s customers to lend out USD Coins to earn interest. The SEC claims this feature is a security, which is subject to tighter regulations, and it plans to sue Coinbase if it proceeds with the launch.
Coinbase claims Lend isn’t always a protection because its customers are not “investing” in anything. It says Coinbase would be obligated to pay out interest regardless of its other commercial activities, and that clients could still request their USD Coins to be repaid at any time. However, that business model closely resembles securities lending — which is probably why the SEC got involved.
On its own, a delay or cancellation of Lend will not hurt Coinbase. But the SEC notice suggests regulators should begin scrutinizing other aspects of Coinbase’s cryptocurrency business in the close to future.
Is Coinbase’s stock really worth buying?
Coinbase is growing like a weed and seems reasonably valued, however it is still an all-in bet on the cryptocurrency market. Therefore, its future growth is wildly unpredictable, and buyers must be deeply skeptical of Wall Street’s longer-term estimates for the company.
Investors who have an appetite for risk and are bullish on cryptocurrencies can without delay buy the coins instead of investing in Coinbase. Meanwhile, investors who are much less bullish however still desire some exposure to the crypto market might want diversified fintech companies like Square instead.
I’d opt for to stick with one of these two options as an alternative of buying Coinbase, which could attract more regulatory pressure as it expands. It will likely loom large in the headlines and be carefully related with cryptocurrencies for the foreseeable future — however it is a bit too volatile for my tastes.
Should you invest $1,000 in Coinbase Global, Inc. right now?
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This article represents the opinion of the writer, who might also disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our very own — helps us all think critically about investing and make decisions that assist us become smarter, happier, and richer.