Since its IPO just over two months ago, the Coinbase (NASDAQ: COIN) share price has fallen 30%. It is no secret that the crypto market has taken off since the turn of 2021, and this is reinforced by Bitcoin’s April all-time high of $63,000. Although volatile, the crypto market has boomed the past six months. So why are Coinbase shares continuing to fall? Let’s take a closer look.
First, let’s look at the positives. Clearly, the crypto market has gained popularity with some investors. In fact, 14% of all US adults own crypto in some form. With total users currently at 56m, the potential market for Coinbase to expand and grow into is evident.
To add to this, Coinbase’s latest first quarter results provide positive signs. Revenues were £1.8bn, up from $585 in the previous quarter. Trading volume was also up, at $335bn, having sat at $89bn in Q4 of 2020. This is especially relevant for Coinbase, as roughly 90% of its revenues come from transaction fees. This means that the large amounts of volatility the crypto market can produce may not necessarily impact Coinbase negatively, as it makes money from people both buying and selling, via fees. This is a real boost for Coinbase shares.
Although many people continue to disregard the crypto market, many also seem to be endorsing it. Back in May, I looked at how the Scottish Mortgage Investment Trust diversified into the world of crypto with a £72m investment. Confidence from large operations such as SMT could have a real effect on investor confidence, positively impacting Coinbase shares.
With this said, I do have my concerns. All the above is dependent on the fact the cryptocurrency market is here to stay. With BTC currently trading at $39,000, 38% lower than its April high, the signs do not look encouraging. The volatility the market has continued to produce makes investors wary to make the leap and invest, which does not bode well for the future Coinbase share price. This was most noticeably seen with Elon Musk and his tweet regarding Tesla halting BTC as payment for its vehicles, which saw a more than 10% fall in the BTC price.
Another issue is the stock’s valuation. With a market capitalisation of $59bn and a rather high valuation, are Coinbase shares overpriced and destined to continue to fall?
My verdict on Coinbase shares
Provided the crypto market is here to stay, Coinbase offers huge opportunities, in my opinion. I would have expected the positive Q1 results to have boosted the share price, but the bearish outlook on the crypto market seems to have outweighed them.
I see the volatile market as a real stumbling block for me taking the leap and investing in Coinbase shares, and I can see the share price falling even further. Ultimately, I am going to keep Coinbase on my watchlist until the crypto market can prove it is more stable.
Charlie Keough owns shares in Scottish Mortgage Investment Trust. The Motley Fool UK owns shares of and has recommended Bitcoin and 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.