Big news with BlackRock

The main driver behind the jump this week came from a news release that Coinbase would provide crypto services to BlackRock. That business is one of the largest asset managers in the world, and services a wide range of clients. A subset of this is the institutional clients group, made up of other professional funds that use BlackRock as a custodian for their assets.

Under BlackRock’s Aladdin platform, these clients will be able to access crypto trading and similar services, provided by Coinbase. This deal is a win for both parties, in my opinion. Coinbase will benefit from more clients and higher transaction activity. BlackRock will benefit from being able to retain existing clients and deepen its relationships via this new offering.

I think this is a bigger win for Coinbase though. The company has been trying for a long time to get validation that it’s a secure way for investors to buy and sell crypto. In getting this partnership, it adds a massive tick in this box.

Coinbase shares bouncing at the right time

The deal comes at a great (and much needed) time for the firm. The share price is down 65% over the past year, even after taking into account the surge this week.

As a crypto exchange, the company is sensitive to the sentiment around Bitcoin and other major cryptocurrencies. When the coins fall in value, fewer are traded. Some investors sell out and remove cash holdings. Either way, it’s not good news for the business.

Bitcoin has halved in value this year, with other coins in a similar boat. It’s also been interesting to see that crypto hasn’t been as much of a hedge against falling stocks as some thought it would be. I think this is another reason why Coinbase shares have suffered.

Brining this all together, the firm desperately needed some good news to share with investors. It has delivered it at the right time, with the share price showing how much it means.

Should I buy now?

Even with the rally this week, I think it has legs to keep rising. I’m a firm believer that the crypto bear market won’t last forever. I can’t predict whether this means a recovery in six months, a year or longer. But as a long-term investor, it makes sense to get involved now so that I’m positioned for the move. When it happens, Coinbase should be poised to take advantage via a broad customer base and generous transaction fees.

Based on that, I’m seriously considering buying Coinbase shares for my portfolio now.

The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

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.

So, with the stock experiencing such a large decline, is now a good time for me to buy some cheap shares? Or is its poor performance over the past year or so a sign that I should steer clear of the stock? Let’s take a look.

Why the Coinbase share price has fallen

The reason for the fall yesterday was the major fall in the price of Bitcoin. Cryptocurrencies have had a dire year, with the two largest — Bitcoin and Ethereum — down 47% and 64%, respectively. Yesterday saw Bitcoin drop over 10%, while Ethereum saw 14% shaved off its price. Coinbase’s alignment with the price of Bitcoin has been a familiar story since going public. So, with the Bitcoin price falling below $24,000, it’s easy to see how the Coinbase share price has tanked.

The drop has been further fuelled by the pausing of withdrawals, swaps, and transfers between accounts by Celsius Network. The crypto lender cited “extreme market conditions,” and it wasn’t alone as Binance, a crypto exchange platform, also temporarily halted Bitcoin withdrawals. Overall, the volatility of the cryptocurrency market has had an adverse impact on Coinbase.

Is there a way back?

So, can Coinbase recover from this? I’m not too sure. Looking at its latest set of results doesn’t provide me with much hope. For Q1 2022, monthly transacting users sat at 9.2 million, representing a fall from the 11.4 million seen in the preceding quarter. And on top of this, trading volume dropped 7% year-on-year to $309bn. As a potential investor, these are not positive signs.

What also concerns me about Coinbase is the recent launch of its non-fungible token (NFT) platform. The wider market has exploded in the last year, with total NFT sales reaching nearly $20bn in 2021. But while the firm had over 2.1 million users on its waiting list for the marketplace, since its launch, the total number of transactions has been disappointing. Where Coinbase has attempted to grab a chunk of the rising NFT market, so far, it has failed.

That said, there are positives too. The cryptocurrency market is volatile in nature. So there’s no reason to write off a Coinbase recovery. The firm posted some strong results last year, especially in Q4. And as it mentioned in its latest results, “you can expect volatility in our financials, given the price cycles of the cryptocurrency industry”. From a long-term perspective, the cheap share price could present an opportunity.

Would I buy?

However, I still won’t be buying Coinbase shares today. The performance year-to-date has been poor. And while I had high hopes for its NFT marketplace, it hasn’t seemed to take off in the manner I expected. While the share price could surge should we see a Bitcoin rally, I’ll be watching from the sidelines.

A short-term dip I’m considering

The big one I want to talk about first is Coinbase (NASDAQ:COIN). Cathie Wood has been a strong advocate of the business. She even bought more shares last week after the share price fell on Q1 results. Over the past week, the share price is down 30%. Over one year, it’s down 76%.

I looked at the company closely last week. The trading volume and monthly transactional users were both down from the previous quarter. With the crypto market also suffering from a sharp sell-off, this naturally hurts the Coinbase share price as well, being a crypto exchange platform.

I actually like this Cathie Wood stock and am looking at buying the shares now. The main reason behind this is that the crypto sector is cyclical. Right now is a bad time, yet I do believe in the long-term potential of the industry. Therefore, it makes sense to buy when the share price is low.

The electric vehicle giant

Another stock Wood holds is Tesla (NASDAQ:TSLA). Again, she’s been a vocal supporter of the electric vehicle manufacturer over the years. Personally, I haven’t agreed with Wood on this one for a while. For most of last year, the share price came with a huge premium versus current earnings. When I covered the stock in April with a share price of $1,000, the price-to-earnings ratio was a massive 219.

I do see Tesla as a great company though. In a similar way to Coinbase, I see electric vehicles as having a long-term future. But I couldn’t justify buying this stock at such high levels.

Fortunately, since the start of the year Tesla shares are down by just over 30%. Over a one-year period, the share price is still up 23%. This move lower in recent months does give me a better option to buy at cheaper levels. This is appealing, but I’ll be waiting on the sidelines before getting involved here as there may be further to fall.

Not just jumping in

As the above two examples show, I agree and disagree about some Cathie Wood stocks at the moment. Time will tell if I was right or not in those I chose to buy or avoid!

Yet the main thing is that I own my investment choices. It’s important to see what others are buying, especially well-respected investors like Wood. Yet I have to be active in my own decision-making in line with my investing goals for the future.

Assessing the fall before the bounce

First, I think it’s important for me to look at the long-term picture. Coinbase shares are down 78% over the past year. It’s been a grind lower for the crypto exchange platform, that went public with a lot of hype back in 2021.

Despite the buzz around the IPO, Coinbase has been caught in a period of time when the crypto market in general has struggled to perform. Further, since the end of last year, financial markets in general have been very choppy. Rising interest rates and high inflation have caused investors to look for safer homes for their money, with crypto not ticking this box.

The move lower in Coinbase shares has been compounded by financial results. For example, consider the latest report from earlier this week. Trading volume for the quarter was $309bn, down from $335bn in the same period last year and $547bn in the preceding quarter.

Monthly transactional users also fell from the preceding quarter. Q1 users were 9.2m, a decrease of 2.2m or 19% compared to Q4. This hurt Coinbase shares as a business trading less due to fewer users, isn’t a recipe for success.

End-of-week jump

Despite the bad news, Coinbase shares did surge yesterday and are likely to post strong gains again today. There are a few things I can put this down to.

Firstly, the crypto market in general had a rebound in prices. The Bitcoin price is up 11% in the past 24 hours, with other coins posting even larger gains. Naturally, there’s some correlation between the prices of these coins and the Coinbase share price.

News also broke yesterday that well-respected investor Cathie Wood has purchased more Coinbase shares for her flagship fund. This seems to add credibility for some who were wondering whether investing now would be a smart move.

Finally, the share price was trading at all-time lows on Thursday. When a stock hits such lows, especially with a sharp move lower, it can be driven up quickly as people rush to buy it at a cheap level.

My thoughts on Coinbase shares

As the quarterly report noted, “you can expect volatility in our financials, given the price cycles of the cryptocurrency industry.” I do think that crypto is going to be part of our future, and that the industry will go through cycles of good/bad times. Currently, it’s definitely a bad time. But as a long-term investor, I feel this is the time for me to take advantage and buy.

On that basis, I’m seriously considering buying some Coinbase shares now.

So, what was behind yesterday’s share price fall? And has the massive decline here presented me with a good opportunity to buy the growth stock for my portfolio?

Why Coinbase’s share price fell yesterday

The reason Coinbase stock tanked yesterday was that the company posted very poor results for the first quarter of 2022 on Tuesday night.

For the period, revenue was down 35% year-on-year to $1.17bn. Wall Street had been expecting $1.48bn. Meanwhile, the group posted an adjusted loss of $1.98​​ per share for the quarter, versus earnings of $3.05 a year earlier. Analysts had been expecting EPS of $0.24. Trading volumes were down 44% on the previous quarter.

As for why the revenue and earnings figures were below estimates, it seems that interest in crypto-assets has declined recently on the back of rising interest rates and high levels of market volatility. The fact that major crypto-assets such as Bitcoin and Ethereum have fallen significant recently will no doubt have also played a role. According to CNBC, 40% of Bitcoin investors are now underwater. This changes the game dramatically in terms of the mindset towards crypto.

In its outlook, Coinbase said that it expected users and trading volume to decline in the current quarter compared to Q1. However, it noted that its outlook for 2022 is largely unchanged. And CEO Brian Armstrong said that the company tends to see down periods, or ‘crypto winters’ as they’re sometimes called, as big opportunities.

Bankruptcy disclosure

It’s worth noting that in a disclosure, Coinbase also revealed that in the event of bankruptcy, crypto-assets held by the group could be considered property of the bankruptcy proceedings and that customers may be treated as general unsecured creditors. This means customers would potentially be the last to be paid out in any bankruptcy. It said this disclosure might lead customers to believe that keeping their assets on the platform is risky, which could have an impact on its financial position in the future.

This development may have also impacted the share price. Having said that, Coinbase did clarify that it doesn’t foresee a bankruptcy event in the near future.

Should I buy Coinbase shares today?

As for whether I’d buy Coinbase stock today, I don’t see it as a good fit for my portfolio.

If I was really bullish on crypto, I could potentially see some appeal here. After all, Coinbase is one of the most dominant platforms in the crypto space. Not only does it have a strong brand but it also has a massive user base.

Yet realistically, I have no idea where crypto is going. The asset class may boom again in the next few years. Or it may continue underperforming. This uncertainty is an issue for me because it makes it impossible to forecast future revenues and earnings. That makes it hard to know the true value of the stock.

Given this uncertainty, and the fact that the P/E ratio here is still about 50, I’ll be leaving Coinbase on my watchlist for now.

All things considered, I think there are better growth stocks to buy today.

After the recent release of its Q4 and full-year results, the stock initially soared. Yet, investors sold off the spike, bringing the price back down.

With the stock down 7% in the last five days, this begs the question should I be buying Coinbase shares today? Let’s take a look.

Q4 results

Let’s start by looking at the Q4 earnings the firm released last week. In the three months ending 31 December 2021, Coinbase generated $2.5bn in revenue, up from the $585m in the same period of the previous year. On top of this, net income rose from $177m in Q4 2020 to $840m in Q4 2021, representing a staggering 375% increase. Trading volume also increased quarter-on-quarter, from $89bn to $547bn, a massive 514% rise.

These figures represent a small proportion of what was an impressive set of results. As a potential investor, these are positive signs.

So, why is the share price down?

If the firm posted such strong Q4 and full-year results, then why have investors rushed to offload their holdings?

Well, this is mainly due to Coinbase’s comments regarding Q1 2022 projections, which look set to fall short of expectations. This is primarily seen through total trading volume, which was $200bn at the time of the release. This has Coinbase on track to widely miss the mark when compared to last quarter. However, Coinbase mentioned how historically “all-time high periods have been followed by softer periods”. As a long-term investor, short periods of volatility are of no concern to me. Instead, I see Coinbase shares as an attractive potential addition to my portfolio.

Coinbase NFT marketplace

What also excites me is the launch of its non-fungible token (NFT) platform. The use of NFTs has grown massively over the past 12 months, with NFT sales reaching nearly $20bn in 2021. This was up from less than $100m in 2020. And over 3m people have already signed up for the waiting list. Further, Coinbase’s NFT marketplace will allow users to buy NFTs without crypto. This, along with its brand recognition, could give it an edge over competitors such as OpenSea when attracting a wider audience.

Would I buy?

So, will I be buying Coinbase shares? Well, despite the projected slow start to the year, I think 2022 could be a strong year for Coinbase. According to a recent study, nearly one in four US households own crypto – and I think in 2022 we will see this increase. The launch of its NFT marketplace is an exciting prospect, and I think that should its launch be successful, it will boost the firm’s future performance. Currently trading for $176, I would be willing to add the stock to my portfolio.

2021 has been a volatile yet successful year for cryptocurrencies with Bitcoin and Ethereum reaching new peaks of over $67,000 and almost $5,000 respectively in November.

Despite cryptocurrencies subsequently suffering from one of the largest market selloffs, I believe prices of these coins could recover and rise further in 2022. Ahead of this there are two stocks, Coinbase (NASDAQ:COIN) and Block (NYSE:SQ), which I will be investing in to get indirect exposure to crypto assets. Here, I assess which is a better investment.

Coinbase

As the largest cryptocurrency exchange, Coinbase has over 73 million users and offers exposure to over 120 different coins. This has made it one of the most attractive marketplaces for those wishing to broaden their crypto holding beyond mainstream Bitcoin and Ethereum, something current competitors are unable to match.

Despite shaky third-quarter earnings back in October, where the company missed its earnings and revenue estimates, I still see a lot of value to be gained from Coinbase as it benefits from first-player advantage and increasing numbers of newcomers to the crypto space thanks to trends such as NFTs.

With crypto being more widely used and accepted as a payment format, Coinbase shares could continue to rise as they expand into offering other services such as crypto wallets and different, new, tokens.  

However, as Coinbase currently generates nearly all its revenue from the buying and selling of crypto currency, the stock’s performance relies heavily on large coins like Bitcoin performing consistently strongly, which makes the stock somewhat volatile.

Block

Another way to play the crypto rally is through digital payments platform Block, formerly known as Square. The company, founded by former Twitter CEO Jack Dorsey, is one of the largest accepting Bitcoin payments. 

In 2021 just over half of its revenues were generated from Bitcoin trading whilst 40% came from digital and seller fees. I think this diversification makes it a strong stock to own as it is less volatile and provides exposure to other growing trends, namely digital payments.

Block’s recent name change could also be a move to join the metaverse trend as it copies peers such as Facebook, which changed its name a few months ago to Meta. With the metaverse and Web 3 incorporating crypto and blockchain technology, I see possibility for Block to increase its Bitcoin holdings further from its current $200 million.

The verdict

I think both Coinbase and Block provide strong exposure to cryptocurrencies and, with a recent crypto selloff, I think both stocks are relatively cheap now so provide a good entry point.

However, whilst Coinbase provides greater exposure to crypto markets and has key advantages such as first-mover status, the stock is too volatile for me.

Instead, I see Block as the better buy out of the two. Its diversified portfolio and operation across the fintech ecosystem beyond just crypto as well as the move to the metaverse could open up key new pathways for the company in coming years.

Q3 results

Let’s start by looking at the Q3 results the firm released last week. While there were positives to take away from these results, some of the figures were of concern to me. Firstly, monthly transacting users stood at 7.4m, which represented a 1.4m fall from Q2 2021. On top of this, trading volume also witnessed a near 30% fall ($135bn), while net revenues fell close to $800m quarter-on-quarter. Net income also took a massive 75% hit. As a potential investor, these are worrying signs. While the firm was keen to mention that it was not a “quarter-on-quarter investment, but rather a long-term investment in the growth of the crypto-economy”, as an investor these declines are hard to ignore.

With that said, I expect a stock of this nature to have its ups and downs. After all, cryptocurrencies are still a relatively new phenomenon. As such, the stock has plenty of long-term potential. Q3 saw verified users grow to 73m, and although net revenue did fall, the $1.2bn generated marked the third consecutive quarter of over $1bn. For a long-term investor like me, this shows that the business has solid foundations for long-term growth.

Bitcoin correlation

Another concerning factor for me is the correlation between the Coinbase share price and the price of Bitcoin. This adds further volatility and a future drop in the Bitcoin price could have a negative impact on Coinbase shares. More broadly, a large number of cryptocurrencies tend to mirror Bitcoin’s performance – which means if Bitcoin falls, the impact is worsened even further for Coinbase.

Yet one aspect that fills me with confidence about Coinbase is its brand recognition. As my colleague James Reynolds highlighted, Coinbase has a large hold on the market. Rumours of a new coin listing are enough to boost the share price. This shows the firm’s strength. It also has large fees, up to 3% in some cases. As the firm makes its money from transfer fees, if cryptocurrencies continue to become more popular and are traded on a larger scale, we could see a large boost in Coinbase revenues. This would see the share price rise.

Should I buy?

I think Coinbase has great potential, and if cryptocurrencies continue to grow the firm will only reap benefits from this. What does concern me however, is the volatile nature of the market. I deem the Q3 results as evidence that the crypto-economy is still at an early stage – and therefore Coinbase shares could be a risk. The market’s correlation with the Bitcoin price is also worrying. As such, I’m going to keep Coinbase on my watchlist for the time being.

However, considering this is a global industry, I have also been looking overseas. That is why I have been running the rule over Coinbase (NASDAQ: COIN) shares as well. 

Both of these companies operate in different sectors of the crypto industry. Argo is a cryptocurrency miner. Meanwhile, Coinbase primarily acts as an exchange. 

The qualities of Coinbase shares 

There are benefits and drawbacks to both of these sectors. Mining cryptocurrency requires a large amount of upfront investment, but it can be highly profitable. Unfortunately, miners are also exposed to crypto prices.

For example, as a Bitcoin miner, Argo’s revenues and profits can rise or fall in line with the cryptocurrency’s price. As the company also has fixed costs to cover, its profit margins can be challenging to predict.

On the other hand, as an exchange, Coinbase can set the profit margin it earns from clients. It has little exposure to volatile crypto prices, as traders will always have to pay a fee to transact on its exchange. The company can set its fees not just for trading but for withdrawals and fiat currency conversions as well. This is why the group’s operating profit margin is 44%. Argo’s operating profit margin was 35% for the first half of 2021. 

Despite Coinbase’s profit advantage, I think it is essential to acknowledge that Argo’s mining operations fulfil an integral part of the crypto ecosystem. Put simply, mining is the process of confirming transactions on the Bitcoin blockchain network. Without it, the system does not work. 

I think there will always be a place for the company in the crypto landscape, but there will also be a need for trading facilities. 

Argo Blockchain weaknesses 

That is why if I had to choose between Argo and Coinbase, I would buy the latter. I am not only attracted to its fat profit margins, but also reputation. Coinbase has a global reputation as a trustworthy cryptocurrency exchange. This is a robust competitive advantage.

On the other hand, barriers to entry in the mining industry are much lower. Few investors care if it is Argo’s network or another firm mining the crypto asset. 

Still, these shares are not going to be suitable for all investors. Cryptocurrency can be a volatile asset class, which many investors may struggle to deal with. It also lacks the regulatory protections offered with other investments. Once again, some investors may not feel comfortable with this type of exposure.

Still, I am comfortable with the risks involved. That is why I would buy Coinbase shares over Argo, although, given the chance, I would be happy to purchase a speculative position in the latter as well.