- Coinbase’s stock has seen significant fluctuations recently, influenced by Bitcoin’s performance and rising ETF inflows.
- Despite these potential growth factors, the company faces risks such as declining trading volumes and high valuation concerns.
Coinbase (NASDAQ: COIN) has experienced a turbulent few months, with its stock price falling by nearly 18% since peaking at $283 in March. Despite this decline, Coinbase shares have shown remarkable resilience, surging over 630% since bottoming out at $32 in December 2022. Several key tailwinds could propel Coinbase’s stock price higher, although potential risks remain.
Bitcoin’s Influence on Coinbase
One of the primary factors influencing Coinbase’s stock price is its close correlation with Bitcoin. Bitcoin has recently formed several technical patterns suggesting a bullish outlook:
- Falling Broadening Wedge: Typically indicates a strong bullish breakout.
- Three Drives Pattern: Suggests more upside potential, especially if Bitcoin surpasses the key resistance at $72,000.
- Bullish Flag: Formed after a significant upward movement, indicating potential for further gains.
- Exponential Moving Averages (EMA): Bitcoin remains above the 50-day and 100-day EMAs, signaling bullish control.
If Bitcoin continues to rise, some analysts, including Michael Novogratz, predict it could reach over $100,000 by year-end. This bullish trend would likely boost Coinbase’s stock, as it did in March when Bitcoin hit a record high.
Historically, the end of Miner Capitulation periods following Bitcoin Halvings has led to significant price increases for Bitcoin in the subsequent months and year.
— Cryptonary (@cryptonary) July 17, 2024
The Hash Ribbon metric suggests that Bitcoin bottoms out when miners capitulate due to high mining costs and/or… pic.twitter.com/6CiDVyKM7i
Rising ETF Inflows
Another catalyst for Coinbase is the increasing inflows into cryptocurrency ETFs. Spot Bitcoin ETFs have accumulated coins worth over $50 billion, with inflows surpassing $16 billion this year. Coinbase, as the largest Bitcoin custodian, benefits significantly from this trend. The company provides custodial services to major players like Blackrock and Ark Invest and will also be the main custodian for upcoming spot Ethereum ETFs. These services generate consistent fees for Coinbase, contributing to its revenue stability.
Potential Political Impact
Donald Trump’s potential return to the presidency could also impact Coinbase positively. Trump has shown support for the cryptocurrency industry and is expected to speak at a significant Bitcoin event. A Trump presidency could lead to a new SEC leadership, potentially replacing Gary Gensler, who is not favored by the crypto community. Analysts at Wolfe Research believe that this political shift could benefit Coinbase.
Risks to Consider
Despite these positive factors, Coinbase faces several risks. Recent data indicates a significant decline in both centralized and decentralized exchange volumes, suggesting potential revenue misses. Additionally, Coinbase’s high valuation, with a price-to-earnings ratio of 48 compared to the S&P 500’s 21, raises concerns. The company is also losing market share to competitors like Uniswap, OKX, and Bybit.
While Coinbase has multiple tailwinds that could drive its stock price higher, investors should be mindful of the potential risks. The interplay between Bitcoin’s performance, ETF inflows, and political developments will be crucial in determining Coinbase’s future trajectory.
