BY MARK SEBASTIAN
January 18th, 2024
Each week, my team will give an overview of a stock. I’ll discuss fundamentals, Licia will analyze the charts, and AG will break down the volatility.
Have a stock YOU want us to review? Email my team here. – Mark
Hey Trader,
With the listing of Bitcoin ETFs it’s time to look at some of the players in crypto that were already around. The biggest of these players is COIN. Is it time to buy this dip, or is COIN going lower…read on to find out.
Coinbase Global Inc (Ticker: COIN).
Fundamentally, there is not much too like in Coin from value perspective …Coin posts negative earnings losing 735 million dollars over the last 12 months. Now, unlike some other startups, this company has actually made money in the past.
From September 2020 to December 2021, Coin made money every quarter. Since the beginning of 2022 though, the company has only had losing quarters. Exchanges have their ebbs and flows of profitability based on volume…that is part of what you get with an exchange…
But to go from making 1.6 billion dollars in the quarter ending June of 2021 to losing 1.1 billion dollars in the quarter ending in June of 2022 shows a volatility of earnings that a standard exchange would never post.
While the net loss on a quarter over quarter basis HAS been shrinking since that quarter, the company still has failed to turn a profit in almost 2 years.
On a positive note, COIN is sitting on a ton of cash, 21.33 per share and has nice revenue per share of almost 12 dollars. Until I see a profit I am skeptical of Coin. The debt to equity ratio is not bad at about .5, so there is that.
But where are the growth prospects…
The bulls will tell you: “ETF’s show that Bitcoin is now an accepted financial instrument.” this implies more people will want to own Bitcoin directly and will trade it.
The bears…myself included…will tell you that what this means is that COIN is going to see less demand. Why? Because I can simply buy an ETF in Bitcoin (just like I can buy GLD instead of gold bars). I strongly believe that these ETFs are going to steal business from Coinbase.
This will reduce the amount of trades and active accounts on their system…I think COIN might end up one of the worse performing stocks for 2024….I am a short.
To figure out the next direction Coinbase (TIcker: COIN) will be trading, you need to look at the Bitcoin (Ticker: BTCUSD) chart.
It is trading below my support level at $43.500. But it hasn’t completely fallen from here.
It is knocking on the old support, which is now new resistance.
Makes me think of Knock Three Times on the Ceiling if you Want Me.
Remember that one from Tony Orlando and Dawn?
I digress … good song though!
BTCUSD could be consolidating here to take another leg lower down to $41,000.
If it begins to bust through that resistance just above here, it will trade back up to $45,000.
COIN has a similar chart:
It is holding my support level here at $128 which lines up with the 50 day moving average.
The stock could be consolidating for its next leg lower, too.
Next support comes in at $114.50 and if it takes off, resistance is at $150.
I need more evidence to make a call either way.
Bitcoin ETFs should make COIN less volatile, hmmm….
Blackrock is getting into bitcoin as are every other ETF custodian. Bitcoin itself is making recent highs as folks pile into the ETFs. That has not been great for Coinbase Inc (Ticker: COIN) after the 100 point runup after the Blackrock news. Traders have been getting out in droves now the news is out.
Below the 90 day realized volatility is taking a bit of a breather. The steady rally brought the realized vol down from mid-October. From that view things look ok but not so.
6 month chart of COIN with 90 day realized vol on the bottom chart
Short term the story is much different as realized volatility over the last 20 days is jumping. January has been unkind to COIN, dropping almost $70 from the peak.
6 month 20 day realized vol with 30 day implied volatility
There is nothing in the volatility story saying the worst is over for COIN. Short term realized volatility is trending up. Downside options are relatively expensive as traders look for more moves south. It would not surprise me for the stock to see $100 again.
The Option Pit Team…
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Questions about anything? Leave a comment below!
Mark Sebastian
Founder & CEO, Option Pit
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