So far, Coinbase Global (NASDAQ:COIN) has seen mixed performance as a publicly-traded stock. On its first day of trading, shares bolted from their direct offering reference price of $250 per share, to as much as $429.54 per share, before settling at $328.28 per share. However, in subsequent weeks, shares have slid to around the $300 per share price level.

Coinbase

Source: sdx15 / Shutterstock.com

At first glance, you may think this lukewarm response makes little sense. Even after April’s “crypto flash crash,” this asset class remains red hot.

Bitcoin (CCC:BTC-USD) is still near all-time highs, and rising-star “altcoins” such as Ethereum (CCC:ETH-USD) continue to impress.

Unfortunately, not even a still-strong crypto market is enough to give COIM stock another boost. Outweighed by numerous issues including valuation concerns related to the risk of competition, the stock stands a better shot of pulling back further from here. That’s assuming the enthusiasm for BTC, Ethereum, and the other “altcoins” continues.

If it doesn’t, and we see another “crypto crash,” we could see en-masse panic selling in “Bitcoin-adjacent” names like this one. In short, offering up less upside than cryptos themselves, and possibly greater downside risk, there’s little reason to dive in at today’s prices.

Why COIN Stock Could Fall, as Cryptos Climb

As I recently put it, it’s way too early to say the party’s over for cryptos like Bitcoin. Sure, the threat of regulatory scrutiny and rumors of onerous taxation may have the market a bit skittish.

There is still ample evidence that continued retail and “smart money” (institutional) acceptance of BTC as a legitimate alternative to fiat currencies could still eventually send it to six-figure prices (it currently trades for around $54,500).

Other major coins, like Ethereum, may have even greater upside. Yet, the possible continued strength of cryptos doesn’t equal big upside potential for Coinbase stock. Why? For starters, richly priced out of the gate, its current valuation overestimates the depth of its economic moat.

With the rapid rise in the prices of products that trade on its platform, the company is set to see its earnings-per-share (EPS) zoom from $1.40 in 2020, to $6.18 per share but the windfalls it’s experiencing now will likely not last forever.

As InvestorPlace’s Vince Martin discussed April 26, Coinbase charges incredibly high fees. Other platforms offer the service for a fraction of the transaction fees. Some platforms, like Robinhood, offer crypto trading fully commission-free!

Speaking of Robinhood, which made its bones by offering commission-free stock trading, we’re going to see a similar race to the bottom when it comes to crypto commissions.

Even as volume goes up, Coinbase’s margins will come down. This makes it debatable whether it can deliver the kinds of numbers we’re seeing now, assuming this market will continue its uptrend with minimal volatility. If we see a serious crash or correction, those holding the stock today could see serious losses.

Possible Outsized Losses If Crypto Crashes

Much of the talk about this company’s future performance assumes a continued bull market for cryptocurrencies, but what happens if BTC, ETH, and cryptos overall correct in a crash akin to the one experienced back in 2018/2019?

Sure, you can say “this time, it’s different.” The bull case may be more solid than the skeptics give it credit. Yet, it remains to be seen whether this asset class continues to go mainstream.

As a Forbes commentator recently made the case, the vast majority of Americans (around 2/3) aren’t interested in crypto. You can look at this two ways. Either blockchain-based finance has a tremendous runway ahead. Or, the people interested in going into it have already done so, and the market (and in turn, individual crypto prices), has peaked.

So, what could happen if we see another big crypto crash? Expect more extreme downward price movements for Coinbase stock. Similar to what could happen with Bitcoin mining stocks, like Marathon Digital (NASDAQ:MARA), this stock could make larger declines than cryptos themselves in a crash.

If limited upside from a continuing strong market wasn’t enough, there’s the risk of greater potential losses as well. In turn, little reason to enter a position at $300 per share.

Bottom Line: Buy Cryptos, Not the Exchange

Putting it simply, it’s tough to make a bull case for Coinbase. There’s plenty to formulate a bear cash with, however, and not just from what I discussed above. The big insider selling right after the direct offering is yet another red flag. If those with more info than you on the company have sold, do you want to buy?

In short, the play with Coinbase stock is clear. Cryptos themselves, rather than stocks with heavy exposure to them, are the better option.

On the date of publication, Thomas Niel held long positions in Bitcoin and Ethereum. He did not hold (either directly or indirectly) any other positions in the securities mentioned in this article.

Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.

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