Is the Coinbase share price ready to rally?

Yesterday, the Coinbase (NASDAQ: COIN) share price rose by an impressive 8.6% in the run up to its results due today. This looks like a good sign for the stock that had a smashing public listing, only to come crashing down soon after.

Could things change for this crypto-economy platform after its results? 

Can Coinbase post strong results again?

At any other time, this would have been a non-question. After all, the company reported stellar results in the first quarter. Its revenue tripled from the quarter before and its net profits rose by four times. But those were also really good times for cryptocurrencies, which were trading at all-time highs. 

Since then, however, their prices have crashed. Bitcoin price, for instance, crashed almost 39% from the start of the second quarter (April-June) to its end. Unsurprisingly, as per Bloomberg, analysts’ estimate that its earnings per share (EPS) will fall from the quarter before. 

Not everyone is pessimistic though. Investment bank Goldman Sachs believes that price volatility can actually be good for Coinbase, because it encourages higher trading volumes. And that is what earns the cryptocurrency exchange its revenues. 

I think there are merits to both arguments. And going by the rise in its share price yesterday, I am inclined to believe that there may well be an earnings surprise in store. 

The challenges for cryptocurrencies

Since successive results each quarter can add up to the making of a really great company, or not, I think it is essential to consider them carefully. But at the same time, I am interested in the stock from a long-term perspective. 

And that is where my big hitch with not just Coinbase, but all cryptocurrency-related stocks, comes from. Their future looks uncertain to me because they still do not have widespread usage. According to a survey reported by data provider Statistica, only 6% of the respondents in the US have ever used or owned virtual currencies, while the number is a similar 7% for China. And there are the two biggest global country economies. 

Sure, cryptos are popular with investors. There are even countries, like El Salvador, that have recognised them as an official currency.  But the point I am making here is that they are still far from mainstream. 

My takeaway

If I, for instance, wanted to start transacting in them, it is difficult to figure out where to start. And the reason for that is simple. None of the establishments I shop at ever seem to have indicated in any way that they accept crypto payments. Moreover, policy makers have repeatedly flagged potentially dubious transactions in these currencies and China has gone so far as to crack down on them.

So, this is not a time to buy Coinbase or any other crypto stocks keeping the long term in mind, not the least because it can be a volatile ride. But I think that there can be speculative gains made from buying such stocks if I have the appetite for them.