Coinbase Global (COIN) stock is spiraling Monday, hit by a sharp selloff in cryptocurrencies, including drops of more than 14% for bitcoin and 18% for ethereum at last check.
Coinbase's stock tends to sell off when cryptocurrencies like bitcoin and ethereum lose value, because, as a marketplace, its revenue is closely tied to the trading volumes of these digital assets.
"Crypto asset price risk could adversely affect our operating results," stated Coinbase in its latest quarterly filing with the Securities and Exchange Commission (SEC). "In particular, our future profitability may depend upon the market price of bitcoin and ethereum, as well as other crypto assets."
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When there is a sharp drop in cryptocurrencies, trading volume typically declines, which means Coinbase sees a decline in transaction fees during these periods. Transaction fees are Coinbase's largest source of revenue, equating to approximately 54% of its total revenue in the first half of 2024.
Coinbase also holds crypto assets, so lower values of these assets directly impacts the value of its holdings. As of June 30, the company's crypto assets consisted of $1.2 billion held for investment, $223.1 million that were borrowed, $84.2 million held for operations, and $21.1 million held as collateral.
Is Coinbase stock a buy, sell or hold?
Heading into today's trading, the financial stock had more than doubled on a year-over-year basis. Even with the recent slump, Wall Street remains bullish on the crypto exchange.
According to S&P Global Market Intelligence, the average analyst target price for COIN stock is $252.52, representing implied upside of more than 30% to current levels. Additionally, the consensus recommendation is a Buy.
Financial services firm Oppenheimer is one of the most bullish outfits on COIN stock with an Outperform rating (equivalent to a Buy) and $282 price target.
"We view COIN as an enabler of crypto innovation, which solves some pain points in the existing financial system, and one of a few remaining exchanges in this space," wrote Oppenheimer analyst Owen Lau in an August 1 note. Lau's bullish outlook on the stock is based on several things, including blockchain adoption, a strong balance sheet, and a "platform for product innovation, which produces a virtuous cycle for monetization."
The analyst adds that "as a leader in the cryptoeconomy, COIN is well positioned to benefit from the mass adoption of digital assets."
Oppenheimer's $282 price target sits roughly 50% above Coinbase Global's current price.
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