You'd struggle to find a better performing stock in recent times than Coinbase (COIN -7.68%). Shares of the digital-asset brokerage and exchange have skyrocketed 626% since the start of 2023, as they benefit from renewed interest in Bitcoin and the equities market.
The momentum for Coinbase has carried over into 2024, as it's up almost 50% just this year (as of April 8). This top cryptocurrency stock just exploded. Is it time for you to buy shares?
Favorable trends
Coinbase's impressive stock price run-up has certainly been propelled by some very powerful trends that are working in its favor. Investors need to know about them.
The first driver has to be the bounce back of the overall cryptocurrency market. At the start of 2023, the industry's market cap hovered around $800 billion. As of this writing, it's at $2.7 trillion. After investors wrote off the industry in 2022, things have come roaring back in a dramatic fashion.
This year, I believe the approval of spot Bitcoin exchange-traded funds (ETFs) is also boosting optimism around the crypto industry. And given that Coinbase is a custodial-service provider to many of these investment products, it's a vote of confidence for shareholders.
I think another positive trend working on behalf of Coinbase is just how much the business has transitioned to a more sustainable model. In 2021, when the crypto market was last experiencing a surge, 93% of the company's net revenue came from transaction fees derived from facilitating trades on behalf of individuals and institutions. In 2023, another extremely positive year for the market, 52% of sales came from transactions.
The change is credited to expanded subscriptions and services. Management hopes this is just the beginning of a more predictable and stable business model.
One reason to buy the stock
It's hard to overstate just how fantastic Coinbase's gain has been. But if you've missed the massive rally, it's best not to have fear of missing out (FOMO). Instead, think about where the business and stock could be three, five, or even 10 years from now. Having this type of long-term mindset is crucial when investing in stocks.
With that being said, I believe Coinbase is a smart buy only for those investors who are bullish on cryptocurrencies in general. That's because this business can be viewed as a bet on the growth of the entire industry.
Coinbase drives crypto regulation forward, engaging in discussions with lawmakers about how to design adequate rules. The company has hundreds of millions of dollars in venture-style investments in private crypto-related enterprises, giving it direct exposure to their success. It's one of the largest and oldest brokerages and exchanges in the world. And it's attempting to usher in a new era in the industry, one focused on driving greater utility of cryptocurrencies. Therefore, it's reasonable to expect Coinbase's financials and stock price to do well if digital-asset prices also rise over time.
Coinbase shares are currently 28% off their all-time high, so bullish investors have the chance to buy at a sizable dip. I'm personally not a buyer of the stock because I don't know where the crypto industry will be a decade from now. There is simply too much uncertainty for my liking.
But for growth-minded investors who have the tolerance to add a little more risk to their portfolios, and who believe in the future of digital assets and blockchain technology, Coinbase might make for a good buying opportunity right now. Just make sure to maintain a very long-term mindset for things to play out. And be ready for the inevitable volatility along the way.
