Many choose not to invest in cryptocurrency directly, but they may want to get exposure through the stock market. One option 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.
Is Coinbase Stock Expected To Go Up?
Price predictions for Coinbase vary dramatically. It’s in a category known as growth stocks, which means it has high reward potential but carries equally high risk.
In addition to the market “headwinds” Coinbase faced last quarter, it — like other exchanges and the market overall — is reeling from the collapse of rival exchange FTX. In fact, Coinbase released a research report on Nov. 15 predicting that FTX’s collapse could extend the crypto winter by several months, and perhaps into the end of 2023, CoinDesk reported.
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. Chanos later criticized Coinbase’s high-cost business model, saying that brokers like Fidelity and Vanguard would eventually undercut Coinbase for the same services the exchange provides.
Yet there are clearly still plenty of believers in the stock’s future. The consensus recommendation among 30 analysts polled by CNN Business is “hold.”
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, 26 analysts polled by CNN Business offered a median 12-month price forecast of $55, which is 4.6% lower than its current price. The most bullish among them have price targets as high as $200.
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. And despite a very rocky 2022, shares are up 67% so far in 2023.
Business Customer Experience Improvements
Coinbase 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.
Retail Market Improvements
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 cost $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.
Acquisitions and Growth
Coinbase acquired a crypto infrastructure company, Bison Trails, in 2021, as 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.
Drawing on Google’s cloud infrastructure — and reducing its reliance on AWS — Coinbase is partnering with Google to allow Google’s customers to pay for their services using cryptocurrency, CNBC reported. As part of the agreement, Google will use Coinbase Commerce and Coinbase Prime to process transactions and allow customers to store and trade cryptocurrencies.
The Bear Case for Coinbase
In its most recent earnings report, released on Nov. 3 for the quarter that ended Sept. 30, Coinbase reported disastrous results. The company had its second unprofitable quarter in a row, losing $545 million compared to a $406 million profit for the same quarter in 2021. Net revenue was down by more than half a year to date. Earnings per share saw a $2.43 loss, faring even worse than the $2.40 Refinitiv analysts had predicted, according to CNBC.
Bearish Price Estimates
It’s clear that Coinbase is suffering right along with the cryptocurrency market itself. Shares are down over 72% for the year. If the company continues to come up short on the revenue and earnings front — which is not unlikely given reduced trade volumes resulting from the bear market and a possibly saturated U.S. market — 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.
On Nov. 10, a week after its third-quarter earnings report, the company announced it would lay off 60 additional employees, primarily from its recruiting and institutional onboarding teams. And in January 2023, the company announced it would slash its workforce by an additional 20%.
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. But while the platform’s verified users grew from 36 million in Q2 2020 to 108 million as of February 2023, the number of monthly transacting users has declined steadily from 11.2 million in Q4 2021 to 8.5 million in Q3 2022, the most recent quarter for which results have been reported.
What’s more, Coinbase went public at a time when cryptocurrency trading was on the rise, but while it has a first-mover advantage, it’s also operating in an increasingly competitive environment. As of November 2022, there were roughly 500 cryptocurrency exchanges, according to Forbes Advisor. That suggested a saturated market even before plummeting trading volume.
Crypto trading volume has fallen off a cliff recently, with the overall market capitalization dropping from $3 trillion in November 2021 to about $863.19 billion as of Dec. 18, 2022, according to CoinGecko data. According to Coinbase’s Q3 2022 earnings report, the market cap shrank by 30% that quarter alone.
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.
FAQStill have questions? Here's what other people interested in Coinbase stock are asking:
- What will Coinbase stock be worth in 2025?
- PandaForecast.com has a price target of $0.59 for December 2025. However, it's impossible to reliably forecast stock prices that far out, because there are too many unknowns and markets change too rapidly. Most Wall Street analysts do not make those kinds of predictions.
- Is Coinbase a buy, hold or sell?
- Coinbase is a hold, according to the consensus among 30 analysts on CNN Business.
Data is accurate as of Feb. 10, 2023, and is subject to change.
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