Coinbase Stock Price Prediction

Many choose not to invest in cryptocurrency directly, but they may want to get exposure through the stock market. One of the standout options is through Coinbase stock, but is it a good investment?

Looking To Diversify in a Bear Market? Consider These 6 Alternative Investments

What Is Coinbase?

Coinbase is a centralized cryptocurrency platform primarily known for its exchange, where users can buy and sell crypto. It serves retail investors and traders as well as major financial institutions.

Not limited to its crypto exchange, users can also make use of interest-earning products, derivatives, credit cards, lending services and the newly launched NFT marketplace. For institutional customers, Coinbase offers crypto custody that stores, secures and provides insurance for large quantities of crypto assets.

How Does Coinbase Make Money?

According to its recent shareholder letter, Coinbase makes most of its revenue from cryptocurrency transactions made on behalf of its users. The remainder of its revenue is driven by what it describes as “subscription and services.” Blockchain rewards and fees from custodial accounts are the main contributors.

What To Consider Before Investing In Coinbase Stock

Coinbase stock’s bull case is based on the continued adoption of blockchain technology and cryptocurrency. One of the key metrics to analyze is customer acquisition, which looks promising so far. The platform’s verified users grew from 36 million in Q2 2020 to 103 million in Q2 2022, nearly tripling.

There are some negatives, however. It has a first-mover advantage within the space, which has built brand equity, but it’s operating in an increasingly competitive environment. As of September 2022, there are nearly 600 cryptocurrency exchanges, according to Forbes Advisor, suggesting market saturation.

The Bull Case and the Bear Case for Coinbase

Several positives and negatives affect Coinbase’s stock price. Here are some of the main points of consideration.

The Bull Case for Coinbase

Coinbase is backed with investments by reputable funds within financial services, such as Andreessen Horowitz and Cathie Wood’s Ark Invest. Another good sign is its focus on new product development.

Coinbase also improved its business customer experience by introducing Coinbase Intelligence. This includes its Know Your Transaction initiatives designed to analyze millions of transactions to assess risk. This compliance angle is more important than ever, as many crypto institutions have begun facing liquidity issues in this bear market.

For the retail market, Coinbase is in the process of launching a subscription service to its platform, where users will have zero fees (save for the spread fees priced into cryptocurrency purchases, sales and exchanges), 24/7 phone support and up to $1 million in protection against unauthorized account access. Currently in beta testing, the service is called Coinbase One, and according to Pymnts, it costs $29.99 per month as of August 2022.

Although Coinbase One has limitations — it doesn’t apply to Advanced Trading, Coinbase Pro or Prime Broker — it will help to diversify Coinbase’s revenue. CEO Brian Armstrong told CNBC on Aug. 23 that he’d like to get to a place where more than 50% of the company’s revenue is subscription and services revenue.

Finally, Coinbase acquired a crypto infrastructure company, Bison Trails, in 2021, which is a part of its effort to build Coinbase Cloud. This signals the company’s intent to grab a slice of the pie that is cloud services, which has been highly profitable for tech leader Amazon Web Services.

The Bear Case for Coinbase

In its most recent earnings report, released on Aug. 9, Coinbase reported disastrous results. The company was projected to post a loss of $2.65 per share, but actual results showed a loss of $4.98 per share. Similarly, revenues of $808.3 million fell short of analyst estimates of $832.2 million. This represented a nearly 64% decline in revenues, CNBC reported. Coinbase reported that “dramatic market movements shifted user behavior and trading volume, which impacted transaction revenue.”

It’s clear that Coinbase is suffering right along with the cryptocurrency market itself. Some Wall Street analysts have price targets as low as $42, representing a nearly 50% projected loss from current levels, even after the stock has dropped over 69% year to date. If the company continues to come up short on the revenue and earnings front, the stock may very well continue to trade down.

The company itself seems to understand that its primary market is shrinking. To help stave off losses, Armstrong announced in June 2022 that the company would be laying off 18% of its full-time workers.

Is Coinbase Stock Expected To Go Up?

Price predictions for Coinbase vary dramatically. It’s in a category known as a growth stock, which means it has high reward potential but carries equally high risk.

As Fortune reported in May, well-known investor Jim Chanos predicts the price of Coinbase stock will continue to fall in the year ahead based on increased competition and shrinking revenue, perhaps to as low as $23 per share.

Yet there are clearly still plenty of believers in the stock’s future. Although shares sold off in the after-hours trading session when the company announced its most recent results, as of mid-day trading on Aug. 10, those losses had not only evaporated but had translated into gains of about 4%. The stock since has fallen back considerably, but the most bullish analysts on Wall Street still have price targets as high as $220.

What Is the Projection for Coinbase Stock in 12 Months?

The economic landscape and the crypto markets could change drastically in a matter of months, making even a 12-month price target for Coinbase speculative. However, of the 27 analysts following the stock — who collectively give it a consensus “buy” rating — the average 12-month price target is $99.91, or about 27% above current levels, according to Yahoo Finance.

Final Take

Crypto trading volume has fallen off a cliff recently, with the overall market capitalization dropping from $3 trillion in November 2021 to less than $1 trillion in June, CNBC reported. Although the short-term environment doesn’t look to be in Coinbase’s favor, it has shown resilience throughout its history. Considering all of these factors, Coinbase has to be considered a speculation, with a high-risk, high-reward profile.

Daria Uhlig and John Csiszar contributed to the reporting for this article.

Data is accurate as of Sept. 15, 2022, and is subject to change.

This article originally appeared on GOBankingRates.com: Coinbase Stock Price Prediction