Coinbase (COIN) dip worth a second look?

Coinbase (NASDAQ: COIN) has been one of the most watched IPO this year. For one, the size of the listing is a staggering. Coinbase was valued at $65 billion based on the reference price of $250 per share. Secondly, Coinbase listing provides an indication on how the future bodes for other crypto exchanges. This includes Gemini, XT.com, Binance and Huobi Global. Truth to be told, there are not a lot of such exchanges that has been listed. With all the expectations and hype, Coinbase reached nearly $430 on the first day of trading (intraday). Since then, the price has been on a steady decline and currently sits at $236.54. With the price drop, is Coinbase (COIN) dip worth a second look now?

Coinbase’s Competition

Comparing Coinbase to other cryptocurrency exchanges, it is important to note that Coinbase is NOT the biggest cryptocurrency exchange. Binance, Huobi and even ZG.com handles more daily trade than Coinbase. Binance in fact handles more than 5x the trading volume of Coinbase.

In terms of the offerings, Coinbase is also not ahead of the major cryptocurrency exchanges mentioned above. Those exchanges offer much more altcoin for trading (one major altcoin missing from Coinbase would be DOGECOIN – DOGE). Hence, they are able to draw more trade -> transaction fees -> revenue. The trading margin in cryptocurrency exchanges is also cutthroat with low bid/ask spread. The transaction fees for major exchanges go as low as 0.1% of the trade value. There is almost no minimum trade value requirement as well.

In short, plenty of choices for traders/investors.

Source: https://www.statista.com/

Coinbase IPO a Boon or a Bane?

While IPO helps generate cash for working capital and investment, it is uncertain at this point if the IPO is really a step forward for Coinbase. The IPO did allow early investors to cash out. Now, Coinbase might have lower flexibility to incorporate changes with all the corporate and regulatory requirements for listed companies. Is there really a need for Coinbase to raise capital or use IPO to raise it’s profile? It’s really arguable since Coinbase has in fact been well established in US (as a major market). Coinbase has more payment channels (e.g. payment via credit cards) than competitors like Binance.

Buy the Coinbase Dip now?

With the recent decline in prices of Cryptocurrencies and a very competitive landscape coming up into the horizon, I feel that Coinbase might lose more market share. Gemini for one has been moving fast to capture a larger pie of the cryptocurrency trading market. They have also done well in customer experience with the very simplified onboarding/ sign up process. There are more “Geminis” in the horizon.

The current price for Coinbase at $236 still puts the market valuation upwards of $60 billion. Comparable to the market capitalisation of Northrop Grumman (NOC), Aon PLC (AON), Kraft Heinz (KHC), Dow Chemical (DOW). These companies have a proven formula to sustain revenue and stay top of their respective areas. Granted the share price for Coinbase has taken a dip and seems like a good discount compared to IPO day-price. It is tempting indeed if you consider the price trend.

I’ll stay out of Coinbase however. I find the cryptocurrency market still too volatile, even if it is at the nascent stage. With competition heating up, the current valuation of Coinbase to me seems too rich, even for a growth stock. I’m not confident it can stay ahead of the curve and even maintain it’s revenue. There is also the shadow of President Biden’s proposed change for 43.4% top capital gains tax rate.

I’ll pass and get a drink instead.

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