While some had thought Bitcoin and other crypto assets might serve as a hedge against inflation, most cryptocurrencies have been trading like high-growth tech stocks. January saw inflation fears take hold of the market, but instead of increasing, Bitcoin and other crypto assets plunged during the month along with the tech sector. Since Coinbase takes a cut of trades based on the volume of crypto traded on its platform, Coinbase's stock price tends to mirror that of leading cryptocurrencies, so its stock fell as well.
Not only did the price of leading cryptocurrencies fall, but trading volume also slumped as fear gripped the markets. Crypto trading volumes fell 30% from the prior month in January, according to CryptoCompare. With the Federal Reserve set to remove liquidity from the market, investors didn't seem to have the wherewithal to trade this new asset class last month. That doesn't bode well for Coinbase's first-quarter results.
While Coinbase's January plunge was likely due to market-wide factors, the company was active during the month in terms of new business partnerships. Notably, Coinbase partnered with credit card network giant Mastercard to facilitate the easier purchase and sale of non-fungible tokens (NFTs). NFTs use blockchain technology to verify the authenticity of digital goods, and Coinbase launched a peer-to-peer NFT exchange back in October. The new partnership has the goal of allowing consumers to purchase NFTs using their Mastercard credit and debit cards.
Coinbase also added Shopify CEO Tobias Lütke to its board of directors at the end of January. In the press release, Lütke said: "The concepts of decentralized finance and entrepreneurship exemplify the promise of Web3 where opportunity exists for the many, not the few. ... Coinbase and Shopify share this like-minded vision, and I am excited to join the Board to support the future that Brian and the Coinbase team are building."
Obviously, Lütke is an incredible success story as a programmer and innovator, so his appointment is a big vote of confidence in Coinbase, which has been public for less than a year.
Coinbase only trades at 14.6 times earnings, but most analysts expect Coinbase's earnings to fall this year, after the speculative boom in crypto trading in early 2021. Still, even though Coinbase's results will fluctuate with the gyrations of the volatile crypto industry, management has done a good job of bolstering the company's status as the most institutionally acceptable crypto brokerage, as evidenced by the Mastercard partnership and Lütke's joining the board.
After its January sell-off, Coinbase looks like a name to watch for those who believe in the future of the crypto industry.