What happened

Today's price action with Coinbase (COIN 1.09%) has been incredible to watch. This stock opened 5.4% higher, relative to yesterday's close. However, as of 11:45 a.m. ET, it's now trading 15.5% higher, as investors price in news that Coinbase has been approved by Italian regulators to serve customers in Italy. 

Additionally, the fact that the overall cryptocurrency market has once again surged above the important psychological threshold of $1 trillion has many investors excited about the potential prospects of exchanges such as Coinbase. When bullish sentiment is high, more trading activity tends to materialize. For investors in a crypto exchange such as Coinbase, that's a great thing.

That said, there are a number of negative headwinds the company is contending with right now.

Most importantly, the recently announced bankruptcy filings of crypto exchange Voyager and hedge fund Three Arrows Capital have led to concerns about systemic risk in the crypto sector. If investors choose to take their tokens off exchanges en masse, that obviously doesn't bode well for investors in Coinbase. This past week alone, the company saw nearly $250 million flow out of its exchange in stablecoins alone, as concerns around liquidity remain high.

Additionally, on Friday, reports that Coinbase has suspended its affiliate program in the U.S. have raised investors' eyebrows. This action, in addition to the company's layoffs and other cost-cutting measures, appears to be symptomatic of what could be liquidity and solvency issues at the exchange. While its community appears to remain resolved that the issues Voyager and others have seen are not likely to permeate Coinbase's business model, it's clear investors have plenty to speculate about moving forward.

So what

A new market for Coinbase is an obvious catalyst investors are likely to cheer. However, it's not necessarily the approval that has investors excited today, but the implications this regulatory ruling could mean for other jurisdictions, particularly in Europe.

Coinbase remains well behind more global exchanges such as Binance. While Coinbase is the exchange of choice for most U.S. crypto customers, the crypto game is a global one, and this move is clearly a step in the right direction for long-term investors bullish on the company's growth potential.

That said, the powerful headwinds facing Coinbase right now are pertinent for investors to consider. While the market appears eager to brush off these concerns today, it's likely that volatility will remain high in this crypto-adjacent stock for some time.

Now what

For the remainder of 2022, Coinbase could turn out to be one of the biggest winners, or biggest dogs, in the market. It really all depends how the structural integrity of crypto exchanges as a whole can handle the stress test of this bear market. While the company does appear more stable than other smaller centralized exchanges, it's unclear as to whether it will be able to avoid permanent damage from what could be a sustained bear market.

Right now, Coinbase is too risky for my particular risk profile. Other aggressive investors may look at today's move as an indication perhaps the bottom is in. I'm just not willing to make that assessment quite yet.