BY MARK SEBASTIAN
November 17, 2024
Let’s start here…coinbase makes money…that is important…the company made 1.56 billion dollars over the last year.
That produces a PE of 56..high but actually…less than NVDA….
It is sitting on 31 dollars of cash per share and has really nice margins of 86%.
The margins are key…Coin only did 5.2 billion in revenue over the last 12 months…when this company produces a dollar it makes money.
The issue I see is that somehow we are conflating the price of Bitcoin to the price of this stock.
Coinbase is a brokerage platform…yes…when bitcoin explodes trading will increase…but imagine pegging Schwab to the price of the S&P 500?
Here is a 2 year chart of the S&P 500 vs Chalres Schwab
The rally with coin does not make a lot of sense.
That being said…look at the PEs of SOFI and AFRM…other financial start ups.
78 for SOFI and AFRM doesn’t have one because it loses money
HOOD…kind of a catch all for stocks and crypto…its PE is 56.
So basically the market is telling us COIN is Robinhood…I think that is a fair comparison.
If coin adds stock ownership to its offering then I really like the valuation.
Basically near term I am neutral…long term I think it’s a win if they execute…
Lets see what Licia sees in the chart….
Coinbase (Ticker: COIN) has only been trading since April 2021 and here is its entire history on the chart:
Zoomed out like this it looks like a big ol rounded bottom.
COIN had just reported earnings on October 30th with a surprise miss taking the stock down over 15% and the following three days trying to recover.
The day after the election, the stock rallied up over 31%.
Three days later it topped out up another 31% and landed right at the top of my pitchfork:
How about that!?
It has since pulled back to the convergence of my red median line and the support of the high of last March.
Today, Thursday, it has closed the gap created on Monday and bounced sitting on that support level.
COIN may just decide to take a breather here.
The key is a close above or below $284 which will give us the next direction.
Taking out this most recent high will take COIN up to $368.
If it fails this support level it could trade down to $265 and possibly $244.
COIN IV was a “bit” much
Say what you want about who won the election, but COIN owners are very happy with the stock going from $30 in 2022 to $300 just this last week. For the most part I have participated in Bitcoin through Block Inc (TIcker: SQ) and Robinhood Markets In (Ticker: HOOD) but I have watched COIN. A couple things to note:
A blowoff top followed by the drop in implied volatility. That usually signals a top is in for the short term.
Realized volatility is crazy high so folks who were short COIN got scorched. That led to the continual gaps up. Now the covering is over.
6 month COIN chart with 90 Day Realized Volatility and 30/180 day implied volatility
I think COIN comes back to earth, similar to the Trump Media and Technology Inc (Ticker: DJT). To be honest I think it is a temporary bullback. The IV is still high on an absolute basis so I would look for cheap put butterflies in the short term. As more and more news comes out, I expect IVs to return to more normal levels once the hype becomes real.
COIN has been an interest for me ever since my sudden inclination to own something in the Bitcoin space as M2 money supply began breaking out again. First, I positioned in MSTR, caught a nice run but got out too early. Then COIN seemed like the relative performance laggard.
Before the election I would say that a Trump, and therefore Elon, win was utterly underpriced in the name. How do I know? Upside call skew was flat and unimpressed. But they were wrong. The rest is history as Bitcoin jumped to $90,000 and all things ‘crypto’ caught fire. A few names like COIN had significant short interest, which only added fuel to the flames.
But now, as the Trump honeymoon perhaps begins to wear off slightly, holders of COIN should consider selling covered calls into the name to harvest some of that juicy option pricing. Implied volatility is trading significantly higher than the 52 week average, and that upside call skew that I mentioned can help to boost call sale returns even more.
There’s an old saying from the trading floor: “When ducks quack, feed ‘em”. Right now upside call buyers are quacking – feed them a few covered calls into the end of the year as option premiums are likely to drop into the holidays.
The performance of Coinbase (Ticker: COIN) has been historically tied to Bitcoin (Ticker: BTC) trading volume and performance. That is why COIN has experienced significant growth, with its stock reaching a recent all-time high due to investor confidence and higher cryptocurrency trading volumes.
That confidence was driven by the perception that a Trump presidency will be more favorable to the asset class. Under President-elect Donald Trump’s forthcoming administration, the oversight of cryptocurrency is expected to undergo significant changes, with key appointments and policy shifts favoring a more crypto-friendly environment.
It is likely that COIN will be actively involved in discussions with regulators to shape cryptocurrency laws.
The SEC plays the pivotal role in regulating digital assets. Reports indicate that Trump plans to replace current SEC Chair Gary Gensler with a pro-crypto candidate.
Potential successors include former SEC Chair Jay Clayton, who has expressed support for easing regulatory burdens to encourage companies to go public and Hester Peirce, an SEC Commissioner known for her favorable stance toward cryptocurrencies.
In addition, the newly announced, and aptly named, Department of Government Efficiency (DOGE), which will be led by Elon Musk and Vivek Ramaswamy, aims to improve government functionality, curb excessive regulation, and reduce wasteful expenditures, which could positively impact the cryptocurrency sector.
Finally, the incoming Congress has a significant number of pro-crypto members, which could lead to a clearer regulatory framework and reduced enforcement against crypto companies.
This all bodes well for the sector, but if Trump nominates a highly pro-crypto replacement to Gensler we could see a sharp rise given the belief that ETFs and other vehicles will be greenlit.
Want To Watch Us Live?
Add Our Free Events To Your Calendar By Clicking Your Email Icon Below!
