Stocks

Coinbase Stock: Crypto Winter Could Induce Even More Pain

Shares of popular cryptocurrency exchange platform Coinbase (COIN) have been feeling even more pain than Bitcoin these days. At writing, Coinbase stock is down around 86% from its November 2021 all-time highs. It's been a rapid, painful decline for shareholders amid crypto's latest slump. With crypto interest drying up, cryptocurrency investors could be in for yet another long crypto winter, as Bitcoin leads the broader basket to depths not seen in the years before the pandemic run-up.

Coinbase is arguably one of the most innovative publicly-traded crypto plays out there. With its newly-launched NFT marketplace and other exciting crypto infrastructure, Coinbase is on the cutting edge of the crypto world. Still, such advancements are unlikely to reduce the impact of a cyclical downturn in the crypto markets. In prior pieces, I warned that such a crypto crash would be detrimental to COIN stock and that its single-digit price-to-earnings (P/E) multiple was not indicative of a cheap stock, given the one major risk.

Looking back, it's clear that Coinbase over-earned in what was a euphoric 2021. With the lights going out on the crypto markets, there's really no telling when the next crypto boom will be, or how bad a crypto winter can get. The severity and length of such a crypto winter could dictate how low Coinbase stock can go.

Even after shedding over 85% of its value from peak to trough, it's still too soon to go fishing for a bottom in the stock. It's a hard company to value, and for that reason, I wouldn't attempt to reach out to catch the falling knife. I am bearish on COIN stock.

On TipRanks, COIN scores a 3 out of 10 on the Smart Score spectrum. This indicates a potential for the stock to underperform the broader market.

Coinbase Lightens up amid Crypto Market Crash

Last week, Coinbase announced that it will lay off 18% of its workforce — around 1,100 workers — in preparation for a "recession" and "crypto winter." CEO Brian Armstrong remained confident that his firm can "adjust" and make it through the coming difficult period.

Indeed, short-seller Jim Chanos, who shorted Coinbase stock many months ago, was right in that the firm had drastically over-earned. As the company heads into a crypto winter, it'll surely under-earn as trading revenues dissipate.

Even if Bitcoin does bottom out at some point soon, it could settle in a new range. And with that could accompany a massive evaporation of interest in the asset class. For Coinbase, that means lower revenues until volatility and momentum can pick up again.

Given crypto's propensity to follow in the footsteps of the equity markets, it seems as though the "millennial gold" argument is no longer valid. With that, many hedging investors seeking to diversify their portfolios with crypto may have lost interest in the asset class for good.

The real risk for Coinbase is what happens to the firm if the last big crypto boom is in the rear-view mirror. There's a real risk that Bitcoin and other tokens may never see their highs again, at least not anytime this decade. For Coinbase, such a scenario could prove severe and bring forth even more downside in the stock.

Could $11.5 billion be too large a market cap for the leading crypto platform? It's hard to say. Many speculators have been burned by chasing white-hot crypto assets, and a lot of them will not repeat their mistakes come the next rally.

Wall Street's Take

According to TipRanks’ analyst rating consensus, COIN stock comes in as a Moderate Buy. Out of 20 analyst ratings, there are 14 Buy recommendations, four Hold recommendations, and two Sell recommendations.

The average Coinbase price target is $137.84, implying an upside of 165.54%. Analyst price targets range from a low of $45 per share to a high of $380 per share.

The Bottom Line on Coinbase Stock

Coinbase is bracing itself for another crypto downturn. Many speculators and investors have grown accustomed to buying dips under the assumption that a V-shaped recovery will be on the way.

At this juncture, such a bounce seems unlikely, given the trajectory of the world economy and the dissipation of speculative activity. If this crypto winter lasts longer than expected, Coinbase stock could go into hibernation until the next speculative boom, which may be more than just a few years away.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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