SHOULD YOU BUY COINBASE STOCK?

 

Coinbase (COIN) is the premium exchange to trade bitcoin and other cryptocurrencies.  The company is direct listing its stock.

Our call has been to buy COIN stock if you could get it in the direct listing or in the private market.

Those who could not get stock in the direct listing and are desirous of buying COIN after it starts trading publicly may consider the following points.

  • The reference price is set at $250 per share.  The stock is not likely to trade anywhere near this price.  However, this is an important benchmark to note in case the stock pulls back at some future date. $250 will act as a major support.
  • In the private market, the stock has traded around $340.
  • The bulls are targeting $600.  $600 is the magnet.
  • As the opening indication becomes clearer, there will be new posts in ZYX Buy.
  • There is enormous enthusiasm from retail investors for this stock.
  • Many retail investors will buy it at the market without understanding the risks and without any concern about the price at which they buy it.   This has the potential to run the stock up much higher than $600.
  • Many institutions have been wanting to get into crypto but have not felt comfortable because of regulatory issues.  Since Coinbase is a stock, there is heavy institutional demand.
  • ETFs that cater to the momo crowd are popular.  Such ETFs are likely to buy this stock.
  • Enthusiasm is so high for this stock that there is a potential for a blowoff top.   
  • A blowoff top is the biggest risk in the very, very short term.  
  • In terms of valuation, at the opening price, this stock will likely be bigger than Nasdaq (NDAQ), New York Stock Exchange parent (ICE) or Goldman Sachs (GS).
  • Valuation matters in the long term.
  • In the very, very short term, the momo crowd is in control.  The momo crowd doesn’t care about valuations.
  • One of the main characteristics of the momo crowd is that they will pay any price irrespective of the value.  The theory is that bigger fools will come around to pay even higher prices.
  • 96% of Coinbase’s revenue is from transactions.  Effective transaction charges are very high.  You already know from your stock trading that when it comes to commissions, it is a race to the bottom.  Eventually, the fees in crypto transactions will fall just like transactions on stock trading.  However, it will take time.
  • COIN’s plan is to increase revenues from non-transaction based services such as custody services.  COIN plans to eventually reduce revenue from transactions to 50% of its total revenue.  There are many hurdles in the way.
  • Due to the high profitability, many Wall Street firms are likely to jump into the crypto business.  Competition is likely to intensify.
  • You already know that bitcoin is very volatile.  Expect COIN to be equally volatile.
  • Due to high volatility, only those investors who are highly experienced in handling volatility should even consider buying this stock.

What To Do Now

Those who own COIN stock may consider selling a 10% tranche at the open and another 5% tranche on a $60 move above the open. Consider continuing to hold the rest with a stop as previously mentioned.

For those not in the stock and are super aggressive, if there is a good setup, a signal will be published in ZYX Buy.  Remember that one of the reasons behind The Arora Report’s enormous success has been a discipline in being patient and not forcing signals. In the long run, it is important to trade only when the setups are right and not get carried away by emotions.

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This post was just published on ZYX Buy Change Alert.

 

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