On the back of a surprisingly strong crypto rally in the first quarter of 2023, shares of Coinbase Global (COIN -1.27%) have spiked more than 70% year to date. That's even better than Bitcoin, which is up about 65% over the same period. 

So now comes a moment of truth. Over the past month, shares of Coinbase are actually down 20%, and some investors are starting to back away from the cryptocurrency exchange. Although the financial picture at Coinbase seems to be getting brighter, a number of regulatory issues still hang over the company. So is now the time to buy the dip?

Yes, buy the dip

The biggest factor in Coinbase's favor is the reversal of fortunes in the crypto sector. It might sound obvious, but if the crypto market is rallying, then Coinbase should be rallying as well. That's why the huge, well-publicized rally of Bitcoin is so important -- it could mark the return of the retail investor to the crypto market, and that would be huge for key Coinbase metrics such as monthly active users and monthly trading volume. The more people who are trading, the more money Coinbase should be making.

When Coinbase last reported earnings in February, the company narrowly beat analyst projections for both revenue and earnings, and that led investors to speculate that better times are ahead for Coinbase. What's particularly striking is that Coinbase is continually coming up with new revenue streams. The crypto winter taught Coinbase that it had to diversify away from just retail trading fees. So new sources of revenue now include subscriptions, services, and crypto staking -- a way investors can earn financial rewards for lending out their crypto.

And it's not just that Coinbase is coming up with new sources of revenue -- it's also coming up with entirely new products and attracting new types of investors. For example, in 2022, Coinbase unveiled a huge new initiative to attract institutional investors to its trading platform. Coinbase partnered with BlackRock, the largest asset manager in the world, to offer crypto trading services to large institutional investors.

And, in 2023, Coinbase has yet another initiative in place to drive future growth, this time within the world of decentralized finance (DeFi). It's called Base, and it's a Layer 2 scaling solution for Ethereum that could enable Coinbase to offer an expanded array of DeFi products to its customer base. Base is still being built, but could become a fantastic long-term growth catalyst.

No, don't buy the dip

However, if you dig deeper into the numbers, there's still reason to be concerned. For example, while earnings and revenue at Coinbase are up, overall transaction volume is not. All eyes will be on Coinbase when it reports earnings in May to see if the Bitcoin rally has translated into higher transaction volume.

Investor in suit looking at smartphone.

Image source: Getty Images.

Of primary concern is that Coinbase appears to be ceding market share to upstart decentralized cryptocurrency exchanges. So it's not just that Coinbase has to out-duel the likes of rival centralized exchanges Binance and Kraken -- it also has to stay one step ahead of decentralized exchanges like Uniswap. Right now, for example, more Ethereum gets traded on Uniswap in any 24-hour period than on Coinbase.

Moreover, not a single month seems to go by without the Securities and Exchange Commission bringing a regulatory action against Coinbase. In the past, the SEC has gone after Coinbase for allegedly listing coins on its platform that are actually securities. The latest brouhaha is over crypto staking. After the SEC went after Kraken for its unregistered crypto staking products earlier this year, the regulatory agency is now turning its attention to Coinbase, which in March received a Wells notice indicating that the SEC has targeted the company for an enforcement action.

2 billion reasons to buy Coinbase

Weighing the evidence, I have to side with investors like Ark Invest's Cathie Wood, who has been scooping up Coinbase on the cheap all year. Now is the time to buy the dip. I think the growth story for Coinbase is still very much in play. When people talk about Coinbase, they typically only think of the exchange's U.S. operations. But the company is called Coinbase Global for a reason -- it has 110 million users in more than 100 countries, and is constantly finding new ways to attract new crypto investors worldwide.  

According to Coinbase Chief Executive Officer Brian Armstrong, the crypto market could grow 10-fold during the next decade, resulting in 2 billion people worldwide using, trading, and investing in crypto. Yes, Coinbase won't win over all 2 billion of those people. Some, no doubt, will opt for decentralized exchanges, but it gives you an idea of what's possible in terms of Coinbase's future growth. Coinbase is playing the long game here, and seems fully committed to the crypto market. If you believe in the future of crypto, then it's time to buy the dip.