Cathie Wood can’t get enough of this crypto stock
Cryptocurrency may be the most hyped asset class of the past decade. Crypto began largely as an academic discussion, as alternatives to traditional currency began to take shape. However, over the past few years, the rise of the retail investor acted as a catalyst for the growing interest in crypto-tokens. Whether it’s digital art like non-fungible tokens (NFT), traditional tokens like Bitcoin (BIT -3.01%) or Ethereum (ETH 0.10%)or meme coins pumped by famous public figures, the cryptocurrency started to peak.
One of the most notable companies in the crypto industry is the trading exchange Coin base (COIN -2.70%). The company’s share price has been volatile in recent years, which is not entirely surprising given the waning enthusiasm for crypto in these uncertain economic times.
A silver lining may be that after the collapse of several competitors, perhaps most notable FTX, Coinbase is still standing. And Wall Street is buying.
Image source: Getty Images.
A modern history of crypto
When cryptocurrency started to take off and become part of today’s lexicon, the casual investor was almost always referring to Bitcoin. One of the biggest reasons why Bitcoin seemed so attractive is because not only was it the first crypto, but there is a limited amount of it. Unlike traditional fiat currency like dollar bills, Bitcoin cannot be printed on demand. That’s why Bitcoin has been labeled “digital gold” by people ranging from social media influencers to hedge fund managers.
Not long after Bitcoin’s rise in popularity, software programmers and technology visionaries jumped on the bandwagon, claiming that new tokens with different use cases and utility would be created. Perhaps the fever pitch occurred during the height of the COVID-19 pandemic, when companies of all sizes began publishing (or minting, as it’s called in crypto) virtual assets such as paintings, music recordings and more and selling the rights to these digitized goods in the form of NFT- is.
Not surprisingly, entrepreneurs noticed a gap in the market and set out to facilitate crypto transactions. It seemed as if overnight new trading posts started to appear. The largest and most notable were Coinbase, FTX, The twinsand BlockFi, among others.
FTX raised billions in venture capital funding, and was seen as Coinbase’s biggest competitor. However, in late 2022, the company found itself at the root of an alleged Ponzi scheme and filed for bankruptcy. The prices of tokens like Bitcoin and Ethereum, which are already plummeting, cratered. Confidence in the crypto-economy was losing momentum, and not long after FTX’s collapse, BlockFi also filed for bankruptcy.
Now, as crypto battles a PR image problem, Coinbase has navigated the storm to the best of its ability. Between major workforce reductions and reduced usage on the platform, Coinbase has somehow managed to survive. But after its earnings report a couple of weeks ago, some Wall Street investors believe Coinbase may have long-term secular momentum.
The last one stands
For the year 2022, Coinbase reported $3.1 billion in total revenue. In contrast, the total revenues in 2021 were 7.4 billion dollars. This significant decline in revenue flowed straight to the bottom line, as the company reported a net loss of $2.6 billion in 2022, compared to net income of $3.6 billion in 2021.
While the financial results can be attributed to macro events like FTX’s fall, Coinbase’s own key performance indicators shed light on the current investor sentiment for crypto. Total assets on the platform fell from $278 billion in 2021 to $80 billion by the end of 2022. Furthermore, trading volume fell from $1.7 billion in 2021 to $830 million in 2022, suggesting that traders were less active.
As a result of this underwhelming performance, Coinbase stock has fallen more than 60% over the past year. Despite the mounting losses and share price, the stock is actually up more than 80% year-to-date as of the time of this article.
Given the extremity of the ebb and flow of the company’s revenue and profitability, it’s not surprising to see the share price whipsaw so dramatically. In addition, traditional metrics such as price-to-earnings or price-to-sales may prove less useful to Coinbase, given the degree to which the company’s performance fluctuates.
By zooming out, investors may be able to discern that despite the weak financial performance, the stock may be undervalued. It can be argued that cryptocurrency still has long-term secular tailwinds.
Although use cases and specific tokens are still being developed, the use of digital currency does not seem to be going away. Also, while its performance leaves a lot to be desired, Coinbase is still standing after its competitors have fallen.
Who on Wall Street is paying attention?
Cathie Wood is CEO of Ark Investment Management. Wood has become a fixture in financial magazine headlines due to her bullish stance on growth companies. More specifically, Wood often forgives short-term losses of businesses she believes will become industry leaders in the future.
While Wood has long been a supporter of Bitcoin, it appears her fund may also be a fan of Coinbase stock. According to her investment profile, Wood sold a large stake in Coinbase over the summer, reducing her total position from 8.4 million shares to 2.5 million.
Starting in August, the investment manager slowly began accumulating shares of Coinbase again and went on a buying spree in November and December, especially when the stock was trading in the $30 range. Wood appears to have doubled down on her bullish stance, buying nearly 1 million more shares between January and the beginning of this month at average prices of about $60 a share.
It should be noted that cryptocurrency is in its early days. It is currently a highly speculative asset class. But given Coinbase’s survival in an otherwise turbulent market, coupled with the backing of a prominent tech investor, it may warrant a small position in your portfolio. At the very least, if you’re already a holder, now might be a time to add more and reduce your cost base.
