What happened

Shares of Coinbase Global (COIN -1.27%) fell by 19.9% in December, according to data from S&P Global Market Intelligence. This move was triggered by weak pricing trends across the cryptocurrency market, but that correlation looks like a mistake.

So what

It's true that major cryptocurrencies suffered similar declines in December. Bitcoin (BTC 0.41%) fell by 18.4% while Ethereum (ETH 0.78%) lost 16.4%. The ups and downs of their chart lines were bunched tightly together:

COIN Chart

COIN data by YCharts

That makes sense at first glance. Lower cryptocurrency prices must be bad news for a company that specializes in digital asset trading services, right? Therefore, Coinbase stock should fall when inflation concerns and sluggish progress on cryptocurrency regulations weigh on those assets.

However, that simple analysis leaves out one important detail. Coinbase holds $330 million of bitcoin and $137 million of ether tokens on its balance sheet. That's just a small fraction of the $6.4 billion in cash equivalents it has on its books, not to mention its $47.4 billion market cap. The investment value of Coinbase is more closely related to cryptocurrency trading volumes than to digital asset prices.

Person stands on a highway marked Cryptocurrency, rising to a giant question mark in the sky.

Image source: Getty Images.

Now what

The number of Ethereum transactions was only 5% lower in December and Bitcoin's volume fell by 8%. Those declines were notably smaller than Coinbase's share price drop.

The cryptocurrency sector continues to exhibit roiling volatility and skyrocketing trading volumes. Keep in mind that the trading platform collects trading fees from those on both the buying and selling sides of the process. A full-blown crypto market panic would generate tons of cryptocurrency sales, pouring trading fees into Coinbase's pockets.

This company, in short, is positioned to be a winner in both bullish and bearish digital asset markets. It will only lose if traders and investors lose interest in cryptocurrencies and move their investable cash into assets such as stocks, bonds, real estate, art, or commodities instead. Even then, Coinbase would collect trading fees as these customers unload their tokens, creating at least a short-lived revenue spike.

I expect Coinbase to leave analysts and investors flat-footed in February when it delivers its fourth-quarter report. Meanwhile, the stock has plunged to 46% below its 52-week highs, and a bargain-bin valuation of 4.5 times free cash flow.

In my eyes, the buying window for Bitcoin stands wide open right now. Bitcoin and Ethereum may rise or fall in 2022 and beyond, perhaps being pushed out by newer, more sophisticated blockchain networks. Either way, Coinbase looks like a winner at its current unnaturally low valuation.