BY MARK SEBASTIAN
June 17, 2024
REPLAY
TRADE IDEA
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,
This week we are looking at the largest crypto brokerage in the US and a name that is synonymous with Bitcoin…Coinbase. Its been on a nice run…is it a buy or a sale…
Let’s break it down….
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Coinbase Global (Ticker: COIN)
Coinbase Global (Ticker: COIN) is trading above $250 for the first time in two years.
The surge in price has been driven by the resurgence in Bitcoin’s price and increasing inflows into Bitcoin ETFs.
COIN has also benefited from partnerships with asset managers launching these ETFs.
Investor interest in Bitcoin ETFs and the overall cryptocurrency market is trending higher, which should help the stock’s momentum.
While I’m never a fan of government regulation, as they are a double-edged sword, increasing regulatory scrutiny of the cryptocurrency market could give the SEC more confidence to approve Bitcoin ETFs. Here are some regulatory concerns:
- Stablecoin Regulation: proposed regulations aim to bring stablecoins under stricter federal oversight, which could impact trading volumes on COIN if these regulations are perceived as restrictive.
- Crypto Exchange Regulations: the SEC’s stance on classifying certain cryptocurrencies as securities could necessitate significant adjustments in how COIN operates and reports its activities.
- Tax Reporting Requirements: new tax reporting requirements for crypto transactions could increase compliance costs for COIN but might also bring more legitimacy to the industry, potentially attracting more institutional investors.
The rate environment will also be a factor. If the Fed starts to lower rates that generally favors speculative investments, including cryptocurrencies.
And that is why I remain “cautiously” optimistic about COIN and like the idea of jumping on the right momentum trade.
-Frank
Coinbase (Ticker: COIN) has been in a steady uptrend for exactly a year now:
The last couple of months it’s been a bit range bound with those highs last March creating some good resistance at $284.
The pitchfork has some resistance just below that at $271.50.
A breakout beyond these levels could take COIN to $368.
The 21 and 50 day moving averages are converging just below here at $230 which provide some support.
Below there, support sits at $198.
COIN looks range bound to me but it is quite a range $219 – $265 allowing plenty of opportunities for trading.
Licia
Given that we are in a market of high PE’s right now…one could argue that coin is cheap.
The stock has a Price earnings ratio of about 50…this is less than the PE of NVDA.
The thing with COIN is that it is strongly tied to pricing of Bitcoin (I’m sure Licia will point that out as well). Although it is not tied to the price.
Generally when BTC is strong so is coinbase…and vice versa….
However coin doesn’t NEED bitcoin to rally. One can trade Bitcoin futures, Eth, Eth futures and many other coins on the platform.
As long as crypto interest increases….COIN will have some upward momentum. Its if the crypto market falls apart that this stock would be vulnerable.
A severe drop in crypto pricing would be a real problem for coinbase because trading would die quickly in the name.
The company traditionally has not carried a ton of debt…but it has seen a spike in the last year:
The company has more equity than debt but I don’t love the decent rise in debt in the last few months.
Now this rise in debt doesn’t really matter much right now…but if crypto trading drops….it could be a problem.
My take…if you want crypto exposure…trade crypto…not COIN.
A very volatile exchange in COIN
One thing about crypto is the story keeps coming back. There is no inherent value, only scarcity but it has captured the get rich quick mentality of the social media set and it is not going away any time soon. Institutional buying means there is a bid now for these things irrespective of the value.
That is not likely to change soon. Mark is not too hot on COIN and I agree with him. If you want a crypto play I like Robinhood Markets Inc (Ticker: HOOD) better and am still riding that. A $240 stock with a 75% realized volatility, see below, means there is serious movement to the tune of 4% per day at least.
In short, COIN is a beast and I would look at a beast position.
1 Year 20 day realized volatility in COIN
What I mean by that is owning options near the money and selling them out of the money. There is considerable skew in the upside calls and would look at a butterfly or broken wing fly for low dollars in a very expensive premium stock.
Be ready for a ride.
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Questions about anything? Leave a comment below!
Mark Sebastian
Founder & CEO, Option Pit
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