Summary Coinbase is up near 100% in the last month. Despite the regulatory uncertainty, the company is well-positioned to benefit from institutional adoption. Investors might get a chance to buy the dip at $70-. Thesis Summary Coinbase Global, Inc. ( COIN ) has been on a tear in the last month, performing even better than Bitcoin ( BTC-USD ). While the SEC has created some uncertainty over the legality of Coinbase’s business, it remains the best option for institutions to gain exposure to crypto. COIN has strategic partnerships with many of the key players in the industry, and it will likely benefit from the continued regulatory attack on its main competitor, Binance. It’s hard to put a price tag on COIN, but it seems quite clear that analysts are underestimating its potential if/when Bitcoin enters a new bull market. Technical analysis suggests investors might have the chance to buy the dip in COIN at around $70. Why Is Coinbase Up? Coinbase is up a whopping 94% in the last month, while Bitcoin is up a “mere” 20%. COIN price (SA) What's going on? Just last month, COIN was being charged by the SEC for operating as an unregistered securities exchange. But a lot has happened since then. Only weeks after the Coinbase and Binance lawsuit, BlackRock applied for a Bitcoin ETF, and this dramatically shifted investor sentiment: Coinbase and BTC price and events (Author's work) The BlackRock application marked quite literally the Bitcoin bottom, with Coinbase bottoming a few days prior. The fact that BlackRock is applying for an ETF is a big sign that institutions are trying to gain exposure to Bitcoin, and this is great for Coinbase, as it is one of the few crypto amps available in the US. If BlackRock ’s ETF does get approved, it will, in fact, be Coinbase who will act as the custodian . This means Coinbase would be in charge of managing and storing the Bitcoin and would, of course, receive a fee from this. But Coinbase’s ambitions go well beyond the US market. The company has a presence abroad too, and it is expanding its global footprint. A recent partnership with Bitpanda will allow Coinbase to offer institutional services in Europe. And this is all happening as Binance, Coinbase’s main competitor, is struggling to keep its presence in Europe. Binance recently exited the Dutch market as it failed to acquire a license . The company is also being investigated by French prosecutors. Binance’s loss is Coinbase’s gain, and in a space where regulation is already unclear, it’s understandable that institutions and countries will be more favourable to working with Coinbase, which is a US-listed company. Lastly, it's also worth mentioning that Ripple ( XRP-USD ) received a favourable ruling from the judge today, stating that secondary offerings of XRP, such as sales on exchanges, did not count as sales of unregistered securities. This is likely also helping bid up the price of COIN today, which was accused of doing just that. How Far Can It Go? The way I see it, Coinbase could have a lot more room to grow from here. Let’s look at the company’s revenue and EBITDA history to try and better understand its future. COIN Revenue and EBITDA margin (Macrotrends) As we can see, COIN’s revenue peaked in December of 2021 at $7.48 billion. At this point, the company also boasted an EBITDA margin of 40%. Of course, revenues and profitability collapsed as crypto entered a long and painful bear market. But with the halving due in less than 12 months, most expect Bitcoin could reach all-time highs in the next 2 years. If that’s the case, we should expect Coinbase to reach, at the very least, the same level of revenues and profitability as in 2021. Let’s assume over the next 5 years, Coinbase can do just that: 5 year DCF valuation (Finbox) As we can see, the DCF model provided by Finbox shows a fair value of $127, assuming a CAGR of 18.9% and an EBITDA margin of 33%. This, in my opinion, is the bare minimum Coinbase should be worth: Technical Analysis In terms of the technical outlook, here’s what I see: COIN TA (Author's work) My belief is that Coinbase bottomed at $33, and is now forming a five-wave impulse to the upside. Wave 1 took us to $97, and this was followed by a retracement in wave 2, which I actually told my subscribers to buy, as we approached the 61.8% retracement of the initial move up. With the latest rally, we have an impulsive structure breaking above the high in wave 1, and this is a very strong indication that a bottom is indeed in. With that said, I would now, once again, expect a pull-back and the $70 region looks like good support. This would be close to the 61.8% retracement of this move up, and we have significant volume coming in at that level, as well as support from the moving averages. Risks Some investors might be caught out chasing this rally, and there are still some risks with Coinbase moving forward. Investors should be aware that the regulatory landscape is still unclear, and this can cause a lot of volatility moving forward. Furthermore, based on Bitcoin’s previous behaviour during the halving, we could experience a sharp sell-off in the months leading up to the halving, which will take place in March 2024. Coinbase could be dragged down if Bitcoin sells off, although we have also seen how the stock can rally even without much higher BTC prices. Final Thoughts I believe Coinbase will perform very well if we enter another bull market. In fact, I think it should outperform Bitcoin. Coinbase is already the second largest exchange for retail investors, but now it stands to make a lot more money from a wave of institutional investors.
