Summary Coinbase Global's stock has experienced a significant price increase of +247% during 2023, driven by the renewed rise in cryptocurrency pricing/interest. However, an uncertain regulatory environment for crypto trading, on top of analyst-projected operating losses until 2027, raises doubts about COIN's future. Weak technical trading indicators and momentum patterns suggest investors sell and/or avoid the stock. I wrote a bearish take on Coinbase Global (COIN) at $244 a share in September 2021 here , months before its all-time peak. One of the IPO darlings of the cryptocurrency craze and leading exchanges/brokers of decentralized blockchain assets that year seemed " too good to be true " at the time, with limited visibility on future operating results. Given wild swings in cryptocurrency values and "exchanges" popping up everywhere, I was very concerned about competition. So much so, I believed sustainable operating profitability would be a tall order (outside of riding crypto price changes for its own account). After a catastrophic drop into the $30s for price (90% from all-time highs in 2021), I flipped to a somewhat bullish view in early January 2023 here , explaining the potential contrarian excuses for a decent rally in the quote. Coinbase had reached the EXACT opposite investor sentiment situation as the mindless euphoria of 2021, where everyone could only see a negative future for the business 11 months ago. Seeking Alpha Article - Paul Franke, Coinbase Global, January 3rd, 2023 Of course, had you invested aggressively and bought Coinbase, an astounding +247% gain was your reward over less than one year. This increase has largely been a function of a dramatic jump in pricing for password-secured computer money, especially Bitcoin (BTC-USD). The leading crypto creation by market cap (and one of the first) has risen from the equivalent of US$16,000 to $37,000 in price, an advance of +125%. Seeking Alpha - Bitcoin-USD, Price Change, 12 Months The bad news for Coinbase shareholders is today I am getting nervous again. With a still uncertain regulatory environment for crypto trading, and many nations outlawing them altogether (like China), the business future remains quite murky for Coinbase. Overvaluation Problem - Again More worrisome, even with relative optimism by analysts now vs. a year ago regarding business growth prospects, COIN is not projected to earn any real income until 2027 (four years from now). If this proves true (or overly optimistic) the current $120 share price and $27 billion equity market value are not exactly a screaming buy for rational investors. Seeking Alpha Table - Coinbase, Analyst Consensus Estimates for 2023-25, Made November 26th, 2023 It's also very difficult to value a company long term, given large operating losses for income and very little free cash flow coming in the door. YCharts - Coinbase Global, Trailing 12-Month Operating Income and Free Cash Flow, 3 Years Perhaps the best way to decide if a new company without earnings has any value to shareholders is by comparing the share price to underlying sales. You will notice on the chart below, Coinbase during 2021 was one of the most expensive choices (20x) vs. financial exchanges, blockchain players, broker/dealers and the main U.S. money-center bank, using the P/S ratio. It then swung to the "cheapest" position in early 2023 (2x), and yet again Wall Street has swiftly re-rated COIN near the top of this peer group for attractiveness (10x). The question becomes, does Coinbase deserve such an extended valuation? YCharts - Coinbase vs. Major U.S. Financial Exchanges, Brokers, Banks - Price to Trailing Sales, 3 Years The problem is earnings are absent, and sales growth is estimated to be quite meager going forward. Is this really the kind of investment you want in your portfolio? All hat, no cattle? Usually, high valuations are matched against high growth rates. Seeking Alpha's computer ranking system gives Coinbase an "F" Valuation Grade , which may not capture how expensive the company really is given a major downturn in crypto pricing and trading interest during an approaching recession. Seeking Alpha Table - Coinbase Global, Valuation Grade, November 26th, 2023 Technical Chart Lacks Momentum Confirmation Another issue I have with Coinbase is its chart pattern. The share price upmove in November is not being confirmed by conventional momentum indicators of underlying strength. For an advance to be considered healthy, you want to find clear evidence of buying pressure in the trend and volume statistics. If bullish momentum does not exist, you can view any further advance as suspect, perhaps needing a period of consolidation and regrouping. COIN's $120 price high on Monday (November 27th, 2023) is not being supported by tons of buying. It may prove to be an over-excitement spike, where sellers step away for a week or two. Then, on the higher quote, they reappear to liquidate in large numbers. Specifically, I do not like the action in some of my favorite indicators. The Accumulation/Distribution Line , Negative Volume Index , and On Balance Volume figures all peaked in July (marked with blue circles). When we review the 18-month chart of daily price and volume trading changes, finding concrete bullish technical support for the latest price advance is not easy. Really, all three indicators have not performed well during the 2023 price jump, each well beneath the levels of August 2022. In the end, we may look back at this year's strong performance as nothing more than a retest of the 2021 all-time high period. StockCharts.com - Coinbase Global, 18 Months of Price & Volume Changes, Author Reference Points Final Thoughts Parsing through all the overvaluation data, I cannot find an honest reason to own/hold shares. If the global economy enters recession in 2024, many cryptocurrency owners may liquidate positions to pay bills and debts coming due if real estate and stock market wealth are also moving in reverse. Under this bearish macroeconomic scenario, Coinbase operating results could spill lower in dramatic fashion. If sales are falling and reported losses growing, why would you want to hold or buy one of the most overvalued assets in the financial trading/exchange sector? How could I be wrong, and COIN continue to enjoy impressive gains? I would say such a scenario requires a flight from other assets into cryptocurrencies. Some pundits/analysts believe this is entirely possible, as new-age investors give up on traditional stores of value (like precious metals) and investments in real estate and regular equities. I am not in this camp. In fact, I am very concerned a deep and prolonged recession could lead to a collapse in cryptos, especially if western governments want to track computer-generated currencies for regulation and taxation purposes. So, 2024 may be the year cryptocurrencies like Bitcoin witness a real "stress test." We may soon see if they will be a lasting addition to the world of financial assets/money, or something of a mania that fades into the history books. I am downgrading my 12-month rating outlook for Coinbase Global to Strong Sell . Thanks for reading. Please consider this article a first step in your due diligence process. Consulting with a registered and experienced investment advisor is recommended before making any trade.
