The Coinbase share price is falling. Should I buy?

Since listing in April, the Coinbase (NASDAQ: COIN) share price has been falling. The stock jumped on its debut but since then, the shares have fallen over 30% and are trading around the $225 mark.

I’ve been watching the Coinbase share price since the company came to market. I’ve previously commented on the stock and said I wouldn’t buy. I’m still not a buyer now, despite the cheaper price and some encouraging signs at the business. 

Why has the stock been falling?

Coinbase is a platform that allows investors to buy, sell and hold different types of cryptocurrencies. It mostly generates its revenue from transactional fees.

The first thing to note here is that these digital assets are volatile. The Coinbase share price is naturally going to be linked to cryptocurrencies — in particular, the most popular one, Bitcoin.

The price of Bitcoin has been far from stable. Last week, the cryptocurrency fell below $30,000 as China cracked down on the use of the digital currency. It bounced back a bit, but China is telling banks and payment platforms to stop supporting cryptocurrency transactions, so that could affect it further.

This clampdown is a concern and one that is likely to impact the stock. I’m also worried that if a large economy like China is doing this, how long will it be before other global economies and regulators follow suit?

I’m fully aware that a new asset like cryptocurrency could take time to be adopted, but I’m waiting to see how this plays out. Hence, I’ll be watching how the Coinbase share price performs.

Results

The company reported its first-quarter 2021 results in May. And the numbers for the three-month period were strong. The firm indicated that it’s “seeing unprecedented levels of interest in the crypto-economy”.

Coinbase saw an increase in most of its metrics. This included total revenue, the number of verified users and trading volumes during the quarter. I like that it’s making the cryptocurrency market more accessible to investors. This means that a person like myself can have easy access to this type of digital asset.

But there’s no guarantee this impressive performance from Coinbase will continue into the next quarter. Especially when cryptocurrencies in general are volatile.

Raising money

In May, the company announced that it was raising capital by issuing $1.25bn convertible senior notes. It said it took this route as it “believes doing so offers a low total cost of capital, operating flexibility and minimal dilution for shareholders”.

The money will be used for long-term growth and expansion. The crypto market is fierce and is growing at a staggering rate. According to Coinbase the “crypto market capitalization reached nearly $2 trillion at the end of Q1 2021 compared to $782 billion at the end of Q4 2020”. It needs the funds to fuel innovation so that it remains a leader in its industry.

My view

As I said, I like what Coinbase is doing but I’m worried about with the potential regulation of cryptocurrencies. I reckon the stock could be volatile in the coming months. So for now, I’ll only be watching the shares.