Coinbase Stock Stumbles Despite Bank of America Upgrade – Is the Stock Still a Buy?

Bitcoins placed beside Coinbase App on iPhone, illustrating one of the largest Bitcoin providers, photographed in Cologne, Germany, 14th of April 2021.
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Bank of America analysts upgraded Coinbase to a “Buy” opinion on Thursday, Jan. 6 as they have “been observing increasing signs of revenue diversification beyond retail crypto trading, a trend we think could accelerate in ’22 and beyond.” However, the upgrade did not help the stock right away, as it slid alongside Bitcoin as the crypto tumbled.

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Coinbase was down 2% to $229.58 after dropping more than 7% during the previous session as Bitcoin slid following the release of the minutes from the Federal Reserve’s meeting, Barron’s reported. On Friday, Jan.7, the stock was down 1.75% mid-morning.

Bank of America analysts said that subscription and services revenues represented 12% of total net revenues in 3Q21, up from 4% in 2020, and they forecast these to grow to 16% of total revenues in 2023, according to a report sent to GOBankingRates.

“Drivers of this trend will likely be a combination of offerings such as staking (blockchain rewards), earn campaign (users earn crypto for learning more about crypto, and COIN gets paid by the underlying digital asset issuer), COIN’s non-fungible token (NFT) platform (which has opened a waiting list for users and we expect will launch this year), and decentralized finance (DeFi) products such as DeFi Yield (enabling COIN users to earn a yield on Dai stablecoins),” they said.

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Bitcoin has been on a downward trend for a few weeks, but some experts are confident to see another Bitcoin bull run later in the year.

Mikkel Morch, Executive Director & Risk Management at crypto/digital assets hedge fund ARK36, told GOBankingRates that after the release of the Fed’s December meeting minutes, hinting at a more decisive move to scale back its expansionary monetary policy to tackle inflation, negative investor sentiment caused Bitcoin “to lose the key $46K level. Once that support was breached, liquidations followed within minutes.”

“However, striking similarities between the current price action and the market moves between mid-May and August do give reasons for cautious optimism in the medium term,” he said. “In any case, only a clear break above $50K would signal a major reversal in the trend and investors should keep in mind the inherently volatile nature of the digital asset market.”

Wilfred Daye, head of digital asset management firm Securitize Capital, echoed the sentiment, saying that the overall outlook for the crypto and blockchain ecosystem is still positive as investors’ perception of the crypto asset complex has developed beyond an inflationary hedge to include sizeable Web3 linked opportunities that continue to evolve with application layers like DeFi and NFTs.

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“Today’s crypto market participants, therefore, have a far more sophisticated and long-term view. Coinbase continues to execute on its strategies to be the financial service provider for the blockchain-based economy, with offerings such as an NFT marketplace, staking, and the Coinbase Wallet,” Daye said. “Cryptocurrencies, however, remain volatile and the correlation between Coinbase and Bitcoin has been about 50%, which is relatively high. As Coinbase diversifies into other offerings, especially staking, I would expect that correlation to be reduced.”

Coinbase — which had a blockbuster initial public offering (IPO) in April — has a stock that appeals to investors who want to get involved in Bitcoin, and have exposure to the crypto, but without holding the asset and hence being subjected to wild swings.

Indeed, Jack McDonald CEO of Polysign, which specializes in digital asset custody solutions for institutional investors, told GOBankingRates that for many investors, Coinbase stock is a proxy for investing in the broader crypto and digital asset marketplace.

See: A Look at the Ups and Downs of Crypto in 2021
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“We’re seeing that now as the broader crypto markets are going through a broad pullback, as we often see in January. If you are new to the market, having a public, liquid and recognized asset to invest in represents a much easier entry point than going down the rabbit hole of opening a crypto account at an exchange and diving in,” McDonald said. “This works for both retail investors, as well as traditional institutions, whose mandate requires them to invest in listed equities. There’s a dearth of public stocks in crypto, so Coinbase will likely be the leading indicator, just like Bitcoin is for the crypto markets.

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If you’re bullish long-term on crypto and digital assets and in turn want to represent that via a public stock, buy COIN!

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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