Author: Slavica Grabovac
Publication date: 10.11.2023
Coinbase is a USA publicly traded company, founded over a decade ago. In particular, it is a cryptocurrency brokerage platform that stores 12% of the world’s cryptocurrencies. In fact, it has a reputable name, with regulation in various regions and a presence on the Nasdaq stock exchange. In this article we are going to see its fundamental and technical analysis. What's more, we will try to answer the question: is this investment good on a long term basis?
1. Revenue model of Coinbase
1. transaction fees – charged to customers who use the platform to trade cryptocurrencies
2. spreads – small difference in price between buying and selling the assets
3. subscription fee
Looking at this revenue model, we can see a potential business model risk here because most of Coinbase’s revenue is from the transaction fees. These fees are already being eliminated in some platforms (eg. Robinfood platform) and this could be an alert for long term investments.
Coinbase will probably charge fees in the next few years, but in the long run, it may not be as sustainable a business model as it is today. In addition to that, if we compare revenue in 2021 and in 2022, we can see it is heavily reliant on trade volume and crypto prices. In 2022 crypto trade volume dropped by 69% and it can be seen on the revenue.
2. Growth potential
On the other hand, Coinbase’s growth potential can come from institutional investors. Nowadays, they are investing more and more in digital assets.
In Coinbase's new survey, they looked at digital asset allocations. Results say that 62% of investors who have crypto increased their investments in the last year, while only 12% decreased them. This shows that institutional investors still believe in crypto for the long term, even as prices have dropped.
3. Future is bright
Coinbase revenue is now mostly located in the US, which means that international expansion can be one of their next goals (that can also be a source of growth). Regarding its cash flow, it was negative last year, but if we take a look at its balance sheet, we can see that they hold a lot of money in cash (5 286 170$).
Technical analysis centers on studying a stock's past market behavior by analyzing its price and trading volume trends over time. Right now technical analysis on several platforms is recommending “strong sell” of Coinbase stocks. But if we look at the long term positions, the trend is “bullish”.
A falling market can be a good opportunity for long-term investors. They can buy more Coinbase stock at lower prices. When Coinbase stock prices go up, investors can sell and invest the money in other stocks with good potential. Investing during market volatility with good values benefits both investors and companies for better long-term returns.
Is Coinbase Stock a good long term investment?
By looking at Coinbase’s business model, we can see that its main revenue source can be at risk. This is because of the trends of eliminating fees on trading platforms. On the other hand, a lot of institutional investors are increasing their investments in crypto assets. So, coin Based cash flow was negative, but looking at the balance sheet, we can see that they still have enough cash to run the business uninterrupted.
Short-term investing can be quite challenging. Studying past price patterns may not predict future results, especially in volatile markets. However, the downtrend in the crypto market can be a great opportunity for long term investments. In such an environment, it is an opportunity to buy stocks at low price and sell them when they go up. Therefore, you should invest only what you can comfortably afford and be extra careful around crypto assets.