Few companies are positioned as favorably as Coinbase, but not for the reasons you might think.
It can be daunting to recommend buying a stock with triple-digit gains in the last year. However, Coinbase Global (COIN -3.53%) is not your typical stock.
As one of the most prominent players in the dynamic and burgeoning crypto industry, there are myriad reasons to believe Coinbase can keep moving higher despite posting a monumental 495% gain since 2023. But to keep things brief, let’s break down the three most compelling cases that capture why investors should buy Coinbase stock like there’s no tomorrow: One for the short term, one for the mid-term, and one for the long term.
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1. Short-term reason: Riding the crypto bull market
Cryptocurrency markets are notoriously cyclical, characterized by periods of explosive growth followed by contractions. While the corrections can be brutal, currently, we are witnessing a clear bull market phase in the crypto sector, as the asset class has jumped more than 150% since 2023.
The play here is simple. Coinbase’s business model is highly correlated to the underlying health of the crypto market. So, if crypto is seeing collective growth, then Coinbase should too.
In the short term, the tailwinds of the bull market will bolster Coinbase’s performance and should help it rise from its current valuation. More importantly, though, Coinbase provides investors with a simplified means of exposure to crypto without having to pick and choose individual cryptocurrencies, ultimately reducing the risk associated with investing in any single cryptocurrency.
2. Mid-term reason: A diversified business model
In the past, Coinbase relied heavily on transaction fees, which accounted for more than 90% of its revenue at its peak. This overreliance led to significant losses during market downturns, such as the billion-dollar loss reported in second-quarter 2022.
However, Coinbase has since learned its lesson and diversified revenue streams, reducing the reliance on transaction fees. Today, revenue derived from transaction fees sits at around 60%. One factor helping drive this transformation has been the company’s expansion of its Subscription and Services sector, consisting of stablecoin interest, custodial fees, and staking rewards.
This shift not only showcases Coinbase’s ability to innovate and adapt, but also provides a more stable revenue model that can weather market fluctuations. While the benefits of this diversification are already visible in the current bull market, they will become even more critical when the market inevitably cycles into another bear phase. With these diversified income sources, Coinbase is better positioned to maintain stability and resilience during crypto winters.
3. Long-term reason: Increasing crypto adoption and regulatory clarity
The long-term outlook for Coinbase is anchored in the increasing adoption of cryptocurrencies among both retail and institutional investors. Historically, retail traders have driven much of the activity on Coinbase and crypto in general.
However, as the crypto market matures, institutional investors are starting to enter the space, bringing with them significant capital. Coinbase’s strategy to cater to both demographics is evident in its ongoing efforts to streamline the user experience for retail traders while also positioning itself as a trusted partner for institutions. A prime example of this strategy is Coinbase’s launch of its blockchain Base, one of the most popular on the market today, along with its role as a custodian for the recently approved spot Bitcoin and Ethereum exchange-traded funds.
Arguably the most critical long-term factor that will propel Coinbase higher is the evolving regulatory landscape. To date, there has been a lack of clear crypto legislation in the U.S., which has impeded the crypto industry’s growth in the world’s largest economy. But this is starting to change, as there is a growing movement among policymakers to establish comprehensive frameworks that support the industry’s growth. Such regulatory clarity will likely bolster confidence in cryptocurrencies, encourage broader adoption, and provide Coinbase with refreshing guidance to operate freely without having to walk on eggshells.
The opportunity today
With Coinbase’s price sitting at around $200, there is a clear opportunity for investors today. To put it simply, Coinbase is a much better company than it was when its stock hit an all-time high of more than $340 in 2021.
If it were to return to its previous record, that would result in a commendable 70% jump. Not bad at all. But when considering the progress that Coinbase has made and the likelihood that this crypto bull market has yet to peak, there is a legitimate case to be made that Coinbase has what it takes to soar to new highs.
RJ Fulton has positions in Bitcoin, Coinbase Global, and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, and Ethereum. The Motley Fool has a disclosure policy.
