Coinbase Stock Has Tanked: Is it a Value Trap or a Bargain?

Coinbase stock price slipped after a weak second-quarter earnings report forced some bulls to flee. COIN has slumped by over 30% from the year-to-date high, while the short interest has jumped to 6.2%, indicating that some participants expect the stock to fall further.

The Case for Coinbase Stock as a Value Trap

A case can be made that Coinbase is a value trap, especially after its most recent second-quarter results. These results showed that the company’s growth trajectory has slowed while its costs have continued to rise.

The results showed that the revenues were $1.5 billion, down by 26% from the previous quarter and up by just 3% from the same period last year. That revenue growth was lower than that of other companies like Kraken and Robinhood. Kraken’s revenue rose by 18%, while Robinhood’s crypto revenue more than doubled.

The other risk that Coinbase is facing is that the crypto industry is being highly competitive, especially in its core market. OKX has announced that it would re-enter the US as it prepares its initial public offering (IPO) in New York.

SoFi, a popular fintech company with millions of users, will launch its crypto services this year. Consequently, this competition may force Coinbase to cut its prices in a bid to become more competitive.

Coinbase is also seeing higher costs, which are affecting its profitability. Its operating expenses jumped to $1.52 billion in the second quarter, up from $1.1 billion.

The other major risk for the company is that it is still overvalued, considering that its growth is slowing. Coinbase stock price has a forward price-to-earnings ratio of 38, higher than the financial sector average of 10.

While the P/E ratio is a good multiple, it does not include the company’s growth in its calculation. As a result, the price-to-earnings-to-growth (PEG) is a better option. Coinbase has a PEG ratio of 5.98, which is much higher than the sector median of 1.22.

The Case For the Coinbase Share Price as a Bargain

On the other hand, a case that COIN stock price has more upside can also be made. First, some analysts note that the company’s innovation and acquisitions have positioned it as the AWS of the crypto industry.

In addition to transaction revenue, the company has developed a comprehensive ecosystem that will help it establish a moat.

For example, it operates Base Blockchain, which has become the largest layer-2 network in the cryptocurrency industry. DeFi Llama data shows that protocols in Base handle transactions worth billions a month.

Coinbase also commands an 80% market share in the custody industry, holding over $250 billion in assets. This growth will likely continue after the Securities and Exchange Commission (SEC) approves altcoin ETFs like XRP and Solana.

Coinbase also plays catch-up in the booming derivatives market through its Deribit acquisition. It is not starting from scratch, making it a formidable competitor to other top exchanges like Binance and Bybit.

The company recently launched TBA, with social, chat, and trading features. It also hopes that the service will help it disrupt the stablecoin payment industry.

Coinbase Share Price Analysis

The daily chart shows that the COIN stock price has plunged this month. It has already dropped below the 50-day moving average and the key support level at $350, its highest point since December.

On the positive side, the stock is approaching the oversold level, with the Relative Strength Index (RSI) moving to 36. Therefore, the most likely scenario is that it will bounce back in the coming days as the crypto market rallies. A move above $350 will point to more gains, potentially to the year-to-date high.

The alternative scenario is where it continues to crash as sellers target the 200-day moving average level at $250.

This article has highlighted the main headwinds and tailwinds facing the Coinbase stock. While COIN is a bit overvalued, it will bounce back if the crypto market recovers. If this happens, a retest of the YTD high cannot be ruled out.