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Everyone can agree that arguing Newton’s law of universal gravitation is not easy, regardless of your grades on school physics tests. But even Newton’s genius probably never imagined that what goes up necessarily goes down is also useful in a metaphorical sense.
In 2020 and 2021, investors witnessed unprecedented activity in the market. Meme stocks were on the rise, social media influencers were pumping out virtual currencies with little (if any) utility, and startups were raising billions of dollars in venture capital. Perhaps no other industry embodies these elements more than cryptocurrencies.
CNBC’s market commentators and high-profile investors like Kathy Wood all seemed to appreciate the elusive asset class. However, the last few weeks have revealed a lot in the cryptocurrency market. With the demise of BlockFi and FTX, crypto skeptics feel they were right, but crypto enthusiasts feel they are holding their bags. Additionally, rumors swirl that other cryptocurrency companies such as Gemini have been co-founded. Bitcoin-Promoting the Winklevoss twins and then possibly falling.
With all this market concern, it’s natural to wonder if it’s worth entering the cryptocurrency market. coin base (coin 1.29%)Cryptocurrency exchanges could be the next to implode, but they could also be the last one when the chaos subsides.
what’s going on?
The first thing investors should realize is that each crypto company is different. These companies compete with each other for market share, but each platform offers its own products and services.
Unsurprisingly, investors who are Coinbase shareholders may be concerned that their investments are at risk due to the impact of FTX. While new details seem to emerge from time to time, the brief version of FTX’s downfall is that a lesser-known hedge fund that isn’t part of FTX’s parent company, but is affiliated with it, claims that the company is selling to its clients. It means that the deposit was poured into the exchange. The hedge fund, called Alameda Research, has been accused of making a string of extremely risky investments that didn’t work out.
This would be an interesting case study, but it has little to do with Coinbase’s business. Coinbase offers many products and services, but the company is primarily used as an exchange to buy and sell crypto tokens.in the same way Charles Schwab Also Morgan StanleyOwned by E*Trade, users can buy and sell derivatives such as stocks, bonds, and options, while Coinbase facilitates the flow of trading capital. Bitcoin (Crypto: BTC), ethereum (Crypto: ETH)among others.
Since the FTX debacle began making headlines about a month ago, Coinbase’s stock has fallen more than 20%.
Image Source: Getty Images.
How low can you go?
That’s the billion dollar question. Not long ago, serial entrepreneur Elon Musk enthusiastically (and comically) tweeted about a new altcoin. Doge (doge 3.56%)Despite the cute and friendly logo showing a Shiba Inu puppy, Dogecoin has no real utility.Bitcoin, Ethereum, or Solana (Crypto: SOL)Dogecoin is not widely used in crypto transactions such as buying non-fungible tokens (NFTs).
As of this writing, Dogecoin has a current market capitalization of $10 billion and Solana has $4 billion. For reference, Coinbase has a market cap of $8.8 billion.
Put another way, crypto tokens, widely considered jokes, are rated higher than the market leaders in their field. Additionally, Solana is still an unverified component of the blockchain, generating billions of dollars in revenue and valued nearly half of his Coinbase, a historically profitable company.
Is the risk-reward profile worth it?
Given the sharp drop in Coinbase stock, investors may be wondering if now is the time to lower the average or should they sell now and abandon crypto entirely? 2022 has been a challenging year for his Coinbase. The company’s main source of revenue has taken a serious hit as trading volumes have fallen. In addition, declining sales are tightening cash flow, leading to cost-cutting efforts.
But it seems that not everyone on Wall Street has lost their credibility. ARK Invest CEO and longtime Bitcoin bull Cathie Wood has been on a buying run recently, increasing her total position on Coinbase from 6.9 million shares in early November to 8.5 million shares now.
Perhaps CEO Brian Armstrong said in Coinbase’s S-1 filing, “Given the price cycle in the cryptocurrency industry, financial volatility is to be expected. This should not surprise us. Because has always been a long-term prospect for crypto adoption.”
The crypto winter will likely continue through 2023, but investors looking for crypto exposure should consider Coinbase stock. Just to be clear, Coinbase stocks are absolutely risky. However, for investors with a longer time horizon or who want exposure to cryptocurrencies, Coinbase stock may be the best bet.
Charles Schwab is an advertising partner for The Ascent, a Motley Fool. Adam Spatacco holds a position at Coinbase Global. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, Ethereum and Solana. The Motley Fool recommends Charles Schwab Stock. The Motley Fool’s U.S. headquarters has a disclosure policy.
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