With the great collapse caused by the exchange scandal FTX cryptocurrencies, the last thing anyone would think about now is to make an investment in shares of... a company in the cryptocurrency sector. But yes, it seems that there is someone who has seen an opportunity in all this storm. Recently, Cathie Wood's Ark Innovation fund acquired no more and no less than 237 thousand shares of Coinbase (COIN). Let's see why Cathie and Ark Innovation have decided just now to expand their investment in Coinbase shares...
What is the current situation of Coinbase?
Coinbase published its quarterly results on November 3. As expected, quarterly net income followed the downward trend. The cryptocurrency exchange has managed to generate $576 million, which represents a drop of approximately 28% compared to the previous quarter. Exposure to the cryptocurrency market hurts the price of investing in Coinbase shares. But it's not all bad news; They have managed to grow their income streams, have reduced their expenses and have cash to weather the crypto winter.
Total market capitalization of the cryptocurrency market. Source: Letter to Coinbase shareholders Q3 2022.
Decline in net income.
We are not going to be surprised by these bearish data, because it was to be expected that commercial activity would not be the same, given that investors prefer to hold their assets instead of trading them. The longer this situation lasts, the more difficult things will be for Coinbase. Right now, get more money from blockchain rewards, platform fees, and interest income.
Coinbase net income (revenue minus direct expenses related to earning that income). Source: Letter to Coinbase shareholders Q3 2022.
Reduction in operating costs.
As for what Coinbase is spending, it has cut quite a bit these last three months. It has reduced its operating expenses by 22%, reduced employee headcount by 5%, and nearly halved its sales and marketing budget. Of course, it continues to spend the same amount on technology and development, which seems justified for a growing company with big ambitions.
Coinbase operating expense breakdown. Source: Source: Letter to Coinbase Shareholders Q3 2022.
In summary; Coinbase accumulated a loss of $544,6 million last quarter, which means it continues to spend more than it earns. But on the bright side, it's not as bad as the previous quarter's $1.090 billion. They have improved something...
What are the advantages of investing in Coinbase shares?
Coinbase has three factors that bode well for its future:
1. Coinbase is a US-listed company.⚖️
With all the dirty strategies of FTX, Celsius or Voyager among others, it is expected that investors will also be wary of incorporating Coinbase into their stock investment portfolio. But unlike those who have acted in bad faith, Coinbase is a publicly traded American company and passes strict regulations of information that none of those three would have passed on. Coinbase's public balance sheets have to show that it holds all of its customers' assets.
The exchange licenses can be consulted on the Coinbase page. Source: Coinbase.
Cryptocurrencies are a growing asset class, but many investors still view them with suspicion. Coinbase has said many times that its strategy is to be the most secure and compliant digital asset exchange, and that makes a lot of business sense.
2. It is trading at a good price, but suffers a lot of volatility.
As we have seen this year, the cryptocurrency market debacle has gone hand in hand with Coinbase's actions. This has presented an opportunity to consider incorporating an investment in Coinbase shares. COIN's revenue (13,3% annually) is expected to grow faster than the US market (6,9% annually) and its P/E almost three times below average. Adding to the drop of almost 90% from highs, investing in Coinbase shares can be a good option to consider. Of course, its extensive exposure to the volatility of cryptocurrencies also affects the company's shares.
3. Coinbase has made good friends with institutional investors.
In August, Coinbase partnered with BlackRock (the world's largest asset manager) to offer institutional investors the purchase, custody and trading of cryptocurrencies in their portfolios. Coinbase is working with BlackRock to connect Coinbase Prime (its institutional platform) to Aladdin, a product already used by more than 200 institutions as a portfolio management system for traditional assets.
The two announcements were well received by Coinbase stock. Source: Tradingview/Twitter.
They also announced that they have partnered with Google Cloud, so customers will be able to pay with cryptocurrencies using the Coinbase Commerce payment system. Google will also use Coinbase Prime for digital asset storage and other uses.
What is the future of investing in Coinbase stock?
A few months ago we wrote an article explaining whether we should invest in Coinbase after the collapse of the crypto asset market in the month of May. As we have already seen, Coinbase's goal is to think ahead about the regulation of the cryptocurrency market. With what we have witnessed with FTX we can assume that regulatory entities are going to deliver a regulatory blow now more than ever. Therefore, this collapse has strengthened Coinbase's position, since it now has one less competitor and has positioned itself as one of the exchanges close to complying with the regulations. One of the measures adopted by the exchanges themselves has been to resort to presenting audited documents of proof of reserves. Although these documents do not fall within the regulatory framework of financial markets. Coinbase will need the cryptocurrency market to revive in order to bill and recover from this time. For the moment, they will have to get by with the cash and income they generate.