The Motley Fool

Will Coinbase shares continue to sink?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

New virtual money concept, Gold Bitcoins
Image source: Getty Images

Coinbase (NASDAQ: COIN) shares closed 4% lower yesterday as prices continued to fall. After its IPO almost two months ago, the stock’s value has sunk more than 30%. With such strong hype around the crypto market, it may seem a surprise that share prices keep falling. Let’s have a closer look at what’s going on.

Coinbase reports positive earnings

Although Coinbase shares are falling in value, the company has posted some seriously encouraging Q1 results. The cryptocurrency exchange reported revenues of $1.8bn, up from $585m in the previous quarter. In addition to this, net profits for the quarter sat at $771m, 24 times larger than 2020’s Q1 profits. The massive jump in Q1 earnings was in line with the booming crypto market at the start of the year. And the fact the firm actually turned a profit was very encouraging as many early-stage growth stocks often operate with heavy losses.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Another positive for Coinbase shares is that the firm makes 94% of its revenues from trading fees. This means that even when the markets aren’t performing well, the firm can still generate fees from buyers and sellers. Growth in users is encouraging too. Monthly transactions more than doubled from 2.8m to 6.1m for the most recent quarter, as total users reached 56m. Both these reasons give me long-term confidence for Coinbase shares, assuming the crypto industry is here to stay.

Crypto market crash

The recent crypto sell-off will likely have been a benefit for Coinbase’s revenues. However, this seems to have been outweighed by a more bearish attitude towards the industry. Bitcoin has almost halved in value since its April highs, with many other popular coins like Ethereum and Ripple following a similar trajectory. With Coinbase shares’ value so closely correlated to Bitcoin’s performance, a bearish crypto market doesn’t bode well for the firm.

What’s more, some volatility of Bitcoin can be linked to Elon Musk’s continuing market commentary. When he announced Tesla would no longer be accepting Bitcoin payments, prices plummeted. Former US President Donald Trump also commented he believes BTC “seems like a scam” in a recent Fox Business News interview. The fact that Bitcoin prices are so easily affected by individual comments, and Bitcoin is so closely correlated to Coinbase shares, are big red flags for me.

Coinbase shares: will they continue to fall?

Provided the crypto industry is here to stay, I think that Coinbase shares could yield some great returns in the future. I would have expected the stellar Q1 earnings report to have boosted the share value, but bearish crypto market sentiment seems to have outweighed the positives. In the current market climate, I don’t see Coinbase shares rising any time soon. In fact, I think they could fall further.

So, I’m keeping my eye on this stock. I do like the firm’s long-term positioning, but it’s so dependent on the wider crypto industry and I want to see some more stability prior to investing.  

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Dylan Hood owns shares in Tesla. The Motley Fool UK owns shares of and has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.