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?

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. Coinbase 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 August 2022, there are about 500 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 Cathie Wood’s Ark Invest and Andreesen Horowitz’s a16z. Another good sign is its focus on new product development.

Coinbase also improves 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 intends to launch a subscription service to its platform eventually, where users will have zero fees. It will be called Coinbase One, and according to the International Business Times, it costs about $30 per month as of March 2022.

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 more than 50% projected loss from current levels, even after the stock has dropped over 63% 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, Coinbase CEO Brian 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 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%. Additionally, the most bullish analysts on Wall Street still have price targets as high as $304.50.

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 33 analysts following the stock — who collectively give it a consensus “buy” rating — the average 12-month price target is $115.49, or about 26% above current levels, according to Stock Analysis.

Final Take

Crypto trading volume has fallen off a cliff recently, dropping by more than 50% from its 2021 peaks. 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.

John Csiszar contributed to the reporting for this article.

Data is accurate as of Aug. 10, 2022, and is subject to change.

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