Coinbase (NASDAQ: COIN) has had a pretty appalling time in 2022. Its shares have sunk a whopping 79% year to date, and over 78% over the past 12 months. The company first floated its shares after its IPO in 2021, where they were priced at $381. The shares are now trading at just $52, highlighting the company’s decline.
However, does this drastic fall present me with a cheap buying opportunity? Let’s investigate.
Why Coinbase shares have fallen
The main reason why Coinbase shares have crashed is due to the sliding crypto market. The price of Bitcoin is down 47% year to date. This means fewer people are buying the cryptocurrency, and hence Coinbase’s commissions will fall. Due to the highly volatile and speculative nature of the crypto industry, whenever Bitcoin falls, all crypto-related stocks usually fall too. For example, yesterday the price of Bitcoin fell by 10%, and Coinbase and Argo Blockchain shares both saw double-digit declines.
In addition to this, rising inflation has put pressure on the Coinbase share price. As inflation rises, central banks tend to hike interest rates. This puts pressure on speculative stocks like Coinbase, as people can achieve higher returns on safer assets.
The company is also facing some pretty serious internal conflicts. A recent report from Coinbase employees called for the removal of three chief executives via a vote of no confidence. CEO Brian Armstrong replied via Twitter, claiming that if workers were unhappy, they should “quit and find a company you believe in”. This is a red flag for potential investors like myself.
Coinbase results have also been pretty appalling. For Q1 2022, monthly users fell by over 2m quarter on quarter, and trading volumes sunk by just under half. This led to revenues falling by over 50% and the company recording a $430m loss, compared to income of $840m in the previous quarter.
Any positives?
The only real positive I see for Coinbase is that the shares are trading on a very cheap-looking price-to-earnings ratio of 4. However, the abysmal results and bearish crypto markets are probably a pretty good explanation for this cheap valuation.
As the cryptocurrency market grows, along with other decentralised entities like Web 3 and the Metaverse, the price of crypto could rise. If this was the case then Coinbase shares could recover. However, this is a highly hypothetical scenario and hence I struggle to use this to back up the Coinbase investment case.
I’m not a fan
Overall, I won’t be buying Coinbase shares any time soon. Yes, they are cheap, but I think this is for good reason, especially considering the poor results and sliding crypto markets. As inflation rises, I think the crypto markets could fall even further and hence the Coinbase share price could be in for more volatility in the coming months.