Ever since the emergence of Bitcoin in 2009, cryptocurrencies have experienced a rollercoaster ride with varying levels of interest from investors and the general public. However, the past year has been a game changer for the entire cryptocurrency market. The buzz around crypto has reached an all-time high due to an unprecedented surge in the value of various digital currencies. While Bitcoin led the way with a growth of over 900% year-to-date, there has been a significant increase in the number of investors choosing to invest in other cryptocurrencies. One company that reaps the benefits of this trend is Coinbase, one of the crypto-focused platforms that have seen its stock skyrocket recently.
Coinbase went public on April 14 this year, with a listing on the Nasdaq stock exchange. Since then, its stock – trading under its ticker COIN – has been on a rapid upward trajectory. The day it went public, the stock opened at $381 per share, making the company worth roughly $100 billion and making it one of the most valuable exchanges publicly traded. This makes Coinbase’s market cap bigger than the New York Stock Exchange (NYSE) itself, which is valued at $24.5bn. In the immediate aftermath of its direct listing, Coinbase’s stock rose to over $400 per share.
The reasons for Coinbase’s impressive performance on the stock market are manifold. One reason is the growing interest in cryptocurrencies among retail and institutional investors alike. Coinbase’s user count has grown from 5 million in April 2020 to 56 million users today. This indicates that there is a significant demand for cryptocurrencies as a whole as well as a willingness to use trading platforms like Coinbase.
Another factor behind Coinbase’s rising stocks is its role as a prominent player in the world of cryptocurrency exchanges. Coinbase is one of the few crypto-focused platforms that has managed to attract institutional investors in a significant way. Major corporations like Tesla and MicroStrategy have invested a total of $1.5 billion in Bitcoin through Coinbase, demonstrating the platform’s institutional credibility.
With the rise in demand for cryptocurrencies, Coinbase has become one of the go-to platforms for traders to buy and sell them. In the first quarter of 2021, Coinbase reported a total revenue of $1.8 billion, which was more than what it earned all of 2020. Furthermore, Coinbase earned more in terms of transaction fees in Q1 2021 than it did in all of 2020, with over $1.1 billion in transaction-based revenue reported.
However, a sustained rise in the cryptocurrency market is not guaranteed, and neither is a continued bullish trend on Coinbase’s stock. Some experts have raised concerns about Coinbase’s reliance on transaction fees to maintain revenue. Additionally, they argue that Coinbase’s role as a centralized exchange poses a risk to both its users and the cryptocurrency market as a whole. If there is a significant hack or a loss of trust in Coinbase, there could be a knock-on effect on the wider cryptocurrency market.
Moreover, the market is prone to a high degree of volatility. Cryptocurrency values are notorious for fluctuating, so a sharp decline in value of major digital currencies could cause a short-term dip in Coinbase’s stock value. Similarly, Coinbase’s dependence on Bitcoin reveals an over-reliance on a single cryptocurrency, which could expose the company if the value of Bitcoin begins to decline.
In conclusion, Coinbase is undoubtedly one of the most significant players in the cryptocurrency market. Its growth in user numbers, revenues, and share value are a testament to this fact. That being said, a sustained rise in the cryptocurrency market is not guaranteed and nor is a continued bullish trend on Coinbase’s stock. The market is still in its early stages, characterized by high levels of volatility and hesitancy among traditional investors. However, Coinbase’s status as a cryptocurrency exchange that specializes in a wide range of digital currencies positions it well to continue its growth and maintain a steady upward trajectory in the long-term.
Bitcoin may have risen by 65% this year, but the prices of some cryptocurrency companies have outperformed the oldest cryptocurrency by a considerable margin. Coinbase Global, for example, has risen 81% so far this year while shares of Marathon Digital Holdings and Riot Blockchain have risen 192% and 254% respectively. However, the uncertainties surrounding the crypto sector should make investors tread carefully, as the recent gains have been driven by the same factors that boost all risky assets – the prospect that interest rates are set to pause or even start falling. Higher rates tend to hurt the returns of investments with the least prospect of near-term profits. Moreover, crypto companies depend both on token prices continuing to rise and on their ability to keep making money from the market – two pillars that are both under threat at the moment. One big problem is the regulatory sphere that is increasingly negative on the crypto industry. Last week, the White House proposed a 30% tax on electricity used by crypto miners, a move aimed at offsetting mining’s environmental impact, while Coinbase, for its part, has been sent a notice that it is likely to be sued for securities violations. However, analysts have seen platforms’ yield businesses as one of the most promising areas of growth for the firm – suggesting that the SEC crackdown could impact profits while the regulatory scrutiny persists.
