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Why Coinbase Stock Is Up on a Dismal Day for Cryptocurrencies

By Chris MacDonald – Updated Jan 7, 2022 at 1:35PM

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It may not seem like it, but Coinbase stock is outperforming right now.

What happened

Today, the entire crypto market is in turmoil. Overall, cryptocurrencies have lost 7.3% over the past 24 hours, as of 12:45 p.m. ET. This move comes following yesterday's Fed meeting minutes, which highlighted a faster-than-expected reduction of the Federal Reserve balance sheet and the potential for rate hikes sometime in March. Risk assets have been under pressure for most of the past day, as investors rethink their short-term investing strategies.

With the crypto market now approaching the $2 trillion level, investors may be concerned with any crypto-related investment. However, popular crypto exchange Coinbase (COIN 3.58%) has actually inched 0.1% higher as of 12:45 p.m. ET, shrugging off these concerns.

Cryptographic decision tree.

Image source: Getty Images.

So what

Coinbase's revenue stream is generated mainly from transaction-based fees. Accordingly, investors thinking about how Coinbase stock performs over any period of time typically look at trends relating to transaction volumes.

Obviously, when the crypto market is surging, an influx of buying activity is bullish for Coinbase stock. However, in an inverse scenario where the market is tanking, transaction volumes from crypto sales can surge. Thus, Coinbase is a crypto play that may provide a more defensive option in times of serious volatility in the crypto world, to the upside or downside.

Today, it appears investors are viewing Coinbase stock much differently than the crypto investments that are available on its platform. It should be noted that this is a stock that remains approximately 45% below its 52-week high. Accordingly, those seeking growth investments at a reasonable price may look to Coinbase stock as a beacon of stability (in a relative sense) compared to most cryptocurrencies.

Now what

A soaring crypto market is typically much better for Coinbase, as new investors look for user-friendly options to get in on the action. However, with the crypto market becoming more established, it appears investors are willing to take the longer view of Coinbase as a solid pick-and-shovel play on this sector.

With volatility remaining high, Coinbase is a stock investors may want to keep on their watch list right now. This is one I'll be following closely, looking at Coinbase's performance relative to that of the overall market. 

Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool owns and recommends Coinbase Global, Inc. The Motley Fool has a disclosure policy.

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