Coinbase – an alternative to direct investment in Bitcoin.

Previously, we have already discussed how you can invest in the cryptocurrency industry through the stock market and productive assets, that is, in the shares of companies that are winning in the existing trend.

In this note, we want to point out the market inefficiencies that are ubiquitous in the market today. Naturally, no one will impose the decision to buy stocks of Coinbase or other trend leaders in their portfolio since there are high risks of volatility, but I would like to express my thoughts on this score.

Crypto market.

The cryptocurrency market is under pressure right now, even though all the most famous and prominent market participants are buying out the current correction and using the moment to increase Bitcoin and Ether on their balances. As a result, the market has generally quieted down.

There are no more prophecies about the Bitcoin revolution for a million dollars. Instead, it is increasingly said that 90% of bitcoins have already been mined, and the remaining 10% – will be mined for the next hundred years.

As for the regulators, they seem to have moved from horror stories and loud scary statements to their primary activity – regulation. The future legal framework for the entire industry is now being laid.

The thought has already been voiced that as the paper bubble (the number of derivatives grows), the volatility of bitcoin will decrease. Of course, it will not happen tomorrow, the market is still tiny, but we will come to a situation similar to the gold market in the future.

If we are looking at this correction, thoughts arise – we came out exceptionally well, but how can we get our share again?

In the future, in the absence of hype, we may see a more significant correction or movement in a sideways range.

Partly because we are talking about liquidity that flows between assets, and in the event of solid downward movements in the stock market, participants will pull money out of other assets, including cryptocurrency.

In general, many continue to hold their “eternal” part of the portfolio in both Bitcoin and Ethereum. But now, I don’t want to buy the speculative part – these “many” have already been drawn into the stock market, where there are more ideas, and they are much more apparent/predictable.

Here we decided to “remember” about Coinbase and see what happens with its stocks and flows.

A quick secondary analysis.

A Coinbase Global Cash Flows.

Revenue has grown five times in less than one year, from $ 1.2 billion to almost $ 6 billion.

Profits grew almost eight times, from $ 322 million to $ 2.6 billion.

The company’s profitability is excellent.

And now the most important thing.

Coinbase is now valued at 18 annual profits and nine annual proceeds. So it is no longer expensive if we start because we are talking about a financial and technological company.

Such a significant revaluation occurred due to 2 factors:

• Multiple growths of flows, that is, the same revenue and profit;
• Significant correction in stocks.

COIN. (based on Tradingview data).

At the time of our Coinbase review, it seemed that events would develop according to one scenario – either an increase in inflows, which will justify the cost in the future, or a correction in stocks, which will reduce the cost of flows. But it did not consider volatility since the trading history was small at the review.

The stock has corrected 33% from recent highs of $ 368 and is below the IPO price.

Under the IPO, the securities were dispersed (in particular, the shares were actively bought by Katie Wood to her funds). It is understandable, but then its financial performance was much weaker. So there was an overestimation on low indicators, and now an underestimation against the background of solid flows – it is absolutely diametrically opposite situations.

At the same time, fundamentally, the company has every chance to grow and higher. Let’s say Blackterminal estimates a 915% growth potential based on Q3 data.

The outlook is too optimistic, especially given the volatility.

And it’s just volatility here – a double-edged sword. That is, stocks can push relatively low. For example, the previous bottom was at $ 209 on May 19, which is -17% to the current price.

Market inefficiency.

In this case, the focus is on market inefficiency. Yet, for some incomprehensible reason (if we exclude banal ignorance), affairs in the company are still evaluated according to how much bitcoin costs and how the cryptocurrency market feels.

Most take it this way: if bitcoin grows, then Coinbase makes more money.

But Coinbase is a cryptocurrency exchange, not a street money changer. So it is no matter which way the market moves, it earns its commissions (which are much higher than the commissions of traditional exchanges).

The only thing that influences is the hype. The strong movement of the cryptocurrency market up and down generates speculation, prompts action. Some sell, others buyback, and both of them are sharply increasing. And the exchange, as a result, earns more on commissions.

It is this straightforward thing that people, for some reason, do not understand. Moreover, many analysts are also in this delusion. However, a specific part of the market participants understands that the primary source of income commissions and the more transactions are made, the more revenue.

As for active “traders”, that is, trading participants, Coinbase ranks second in the list of the largest cryptocurrency exchanges after Binance. However, there are such crypto exchanges: CEX.io, PancakeSwap, Kucoin, Bybit, FTX, Crypto.com, Indodax, Upbit, eToro and Kraken.

But it is not the main thing either.

Initially, it assumed that the company would not rest on its laurels of the first cryptocurrency exchange in history to go public. However, let’s say that the attitude towards this exchange was a little biased.

We remember how she appeared and how she lured new clients to her. It offered various crypto bonuses for registering and completing a short training on how the cryptocurrency market works. After that, the exchange referred to the impossibility of payments in specific regions and did not begin to give the promised gifts to customers (although it was about small amounts within each check).

In general, it was. But now, the company is very actively absorbing various projects/startups and expanding its activities. So, in 2021, from the leading news about Coinbase, we note:

• Acquisition of Skew, a leading data visualization and analytics platform for cryptocurrency markets;
• Obtaining a license to store and trade cryptocurrencies in Germany. German regulator BaFin was the first in the European Union to issue such permits, and Coinbase is still the only company to receive it;
• Opening registration for early access to the site for creating and trading NFT;
• Acquisition of the developer of solutions in the field of cryptographic security Unbound Security. After the purchase, Coinbase gained access to the world’s most experienced crypto security experts, as well as a presence in Israel;
• Creation, together with Fidelity, Square and cryptocurrency company Paradigm, of a lobbying group – Crypto Council for Innovation (CCI). CCI is partnering with policymakers to correct cryptocurrency misinformation and counter-criticism of the digital currency.

Finally:

• Facebook has partnered with Coinbase to pilot the new Novi digital wallet for the USDP digital dollar. It will deposit the digital currency of the wallet users with Coinbase Custody.

Here I would like to note that although USDP will not necessarily become that digital dollar (CBDC), there is no doubt that Coinbase will be directly involved in its launch, testing, etc.

That is, Coinbase is a story of a new economy. The company understands this and is increasing its assets in the sector, expanding the boundaries, introducing new technologies and solutions.

And this instils peace of mind for the further growth of financial flows.

Summing up, taking into account everything described, we can consider the option (in whole or part) instead of Bitcoin to buy Coinbase stock. With the same volatility risks, we do not get a digital asset, which costs $ 60,000 today, $ 40,000 tomorrow, but the day after tomorrow, $ 100,000, but a business that makes money across the entire industry and is unlikely to disappear. You can invest in Coinbase with online brokers such as AvaTrade, Forex.com or Plus500.

It should be noted that, although our brief analysis concerned mainly the Coinbase exchange, it can equally attribute this conclusion to the shares of the leader of the global cryptocurrency exchange industry, Binance.

Indeed, the business that makes money on such a large-scale and dynamic industry will not disappear in the foreseeable future.

In general, the more we delve into the essence of M&A transactions (acquisitions and mergers), the more we understand that let the haters repair tractors and dig potatoes. From a business point of view, this market has long outgrown the level of “crypto-enthusiasts”. There are transactions worth hundreds of thousands of dollars every week. The most useless and goofy shitcoins like Shiba Inu have capitalization like those of large oil and gas companies.

Over time, of course, the market will have to be cleansed of digital non-viable garbage, but while Elon Musk is there, it isn’t easy to imagine such a story.

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