So… what’s happenin’ this week?
I’m still wrapping my head around whether or not I’m interested in building a position in Coinbase (COIN) (or Voyager (VYGR.CX, VYGVF), or other brokerage/exchange companies in the cryptocurrency space), so I’ve been curious to watch the shares of COIN slowly drift down as Bitcoin prices fall from their highs. And yes, it is a pretty direct relationship between Bitcoin prices and the prices of those stocks — this is where the prices have gone since the Coinbase IPO last week, and I’ll be surprised if that correlation doesn’t continue:
And COIN did get its first “tepid” analyst grade — Mizuho came out “neutral” on the shares, with a price target of $285 (right about where it is now). Everyone is quite aware that the huge underlying risk for Coinbase in any given year is just “Bitcoin prices”, if Bitcoin falls and people lose interest in crypto trading, COIN will fall, too, probably very hard… but nobody can really predict those cycles for anything, let alone for cryptocurrency prices, so the real operating risk that most analysts bring up is competition — COIN charges pretty high fees, so will they be pressured, as past brokers and exchanges have, to compete on price and lower their income to hold onto or recruit customers?
I think you’d have to say “probably,” but it’s also important to remember that in any business, the most visible market leader holds a lot of power — Coinbase can cut costs, absorb losses, or become more efficient more easily than smaller competitors can. Competing should be easier for them than it is for a startup like, say, Voyager to take market share just by offering to lose money. I’m inclined to like COIN because of its early leadership and strong brand in the US, but it’s sure not guaranteed to succeed and it will be levered to Bitcoin prices.
Coinbase now has about 260 million shares outstanding, if you include the supervoting insider B shares (as we should, though they don’t show up in some systems), so that means they have a market capitalization of about $75 billion. If the first quarter was a sign of things to come and they grow from here, they’re trading at about 10X sales and I can justify that pretty easily — that valuation is right in the range you’d ...