It's no surprise that 2022 has been a volatile year for both the capital and crypto markets. The days of meme stocks and mooning assets seem so long ago. Since its public debut in April 2021, Coinbase (COIN -0.34%) has been one of the most scrutinized stocks on the Nasdaq. It's become challenging to keep up with the company's developments amid increasing regulatory concerns over the crypto markets and waning investor enthusiasm.
Yet despite all of this turbulence, Coinbase has managed to make some significant progress. In this article, we are going to discuss how Coinbase has started laying the foundation to become a full-spectrum crypto conglomerate and mature beyond simply a trading exchange.
Big tech follows Wall Street
Over the summer, Coinbase announced that it had partnered with asset-management firm BlackRock. More specifically, the partnership revolves around BlackRock's proprietary risk-management software called Aladdin. At a high level, Aladdin's software is leveraged by hedge funds and other financial institutions to process analytics across stocks, bonds, and foreign exchange currencies as well as derivatives and alternative assets. While that is an impressive roster of asset classes, do you see anything missing? Coinbase did.
According to a press release on Coinbase's blog, BlackRock selected the exchange to serve as its integrator to provide "crypto trading, custody, prime brokerage, and reporting capabilities to Aladdin's Institutional client base who are also clients of Coinbase."
While this partnership is nascent, it is probably not a surprise that other large companies, albeit in different industries, took notice. Just last week, Internet behemoth Alphabet announced a strategic partnership with Coinbase. Let's explore why this is a big step forward for Coinbase and the crypto economy.
Image source: Getty Images.
Is this partnership a big deal?
There are a lot of moving pieces in Alphabet's deal with Coinbase, and both companies are well-positioned to benefit.
Essentially, Alphabet has decided that it will allow its cloud customers to pay for its services in Bitcoin, Ether, or Dogecoin should they choose. Coinbase will be the technology powering these payments via its Coinbase Commerce offering. This is an interesting position for Coinbase because as Alphabet's cloud platform continues to grow, there is an argument to be made that Coinbase's infrastructure will power more transactions. The two biggest variables in question are the pace at which adoption of crypto payments moves, and the increasing number of crypto tokens supported by Google Cloud.
While this is exciting for Coinbase, this is also a big win for Alphabet. While Amazon and Microsoft dominate cloud computing, Alphabet's platform, Google Cloud, is quickly gaining market share. According to the terms of the partnership, Coinbase "selected Google Cloud as a strategic cloud provider to build advanced exchange and data services. In addition, Coinbase will use Google Cloud's powerful compute platform to process blockchain data at scale, and enhance the global reach of its crypto services by leveraging Google's premium fiber-optic network."
According to CNBC, Coinbase will move some of its existing applications away from Amazon's cloud platform, AWS. This is a huge deal for Alphabet. While it is still early innings, Coinbase's management has not allowed the crypto winter to deter its vision. Despite cratering asset prices and lower trading volumes, Coinbase's leadership has focused relentlessly on the wider adoption of crypto, especially with large institutions.
Keep an eye on valuation
Owen Lau is an equity research analyst with Oppenheimer. He currently has a Buy rating on the stock and a projected price target of $107. During a recent interview, he was asked about the implications of this partnership and what it could mean for Coinbase.
Interestingly, although not surprising, Lau did not explicitly state whether this deal would impact Coinbase stock in the short term. Instead, his rationale is that since the markets are still operating in a crypto winter, investors are best served acting with caution.
Coinbase is slated to release third-quarter 2022 earnings on November 3. While there may be some near-term volatility leading up to earnings, prudent investors should wait until after the earnings release to make a decision about the stock. While Coinbase is trading well-off its highs, it is still very much a speculative stock to own. It is highly likely that investors will learn more about the company's progress with BlackRock, Alphabet, and any other potential partnerships during the call.
One thing that is highly likely is that crypto is here to stay one way or another. Its role in the larger economy and financial markets will certainly evolve. However, investors should feel encouraged that the world's largest financial and technology firms are not only involved with crypto but are also partnered with Coinbase specifically. Coinbase could be a good stock to own for investors with a long-term market outlook.
