Is it time to throw in the towel on Coinbase stock?

Is it time to throw in the towel on Coinbase stock?

Shares of cryptocurrency trading market Coinbase (NASDAQ: COIN) led to a drawdown in its horrendous Q2 2022 earnings report. Shares continue to fall (-66%) for the year, even after more than doubling their lows of $44.15 on June 30, 2022. The stock was short at 21% prior to its earnings report, which fueled a contraction to as low as $98.70 before it was withdrawn. back. Favorable CPI data indicating possible peak inflation also added to the buying. Coinbase went from generating $771 million in net income in the first quarter of 2021 to losing (-$430 million) a year later, turning almost $1.2 billion from big green to deep red. Competition from major brokers and fintechs like Robinhood (NASDAQ: HOOD) continues to increase as they provide more access to the cryptocurrency markets. Coinbase has grown its institutional client base north of 13,000 customers through its Coinbase Prime platform. Institutional clients account for more than 75% of trading volume, and trading volume is directly related to revenue. Bitcoin has fallen (-48%) this year, but is trying to stage a rally. Therein lies the key.



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Where Bitcoin goes… So goes COIN

Bitcoin crashed from a high of $69,000 on Nov 8, 2021 to a low of $17,567 on June 18, 2022. It is no coincidence that the collapse of Coinbase stock coincides with the collapse of bitcoin prices. You can link the price of Coinbase shares to the movement of bitcoin. As Bitcoin crashed, so did Coinbase stock. Bitcoin has been trying to break out after basing the $20,000 price level. The key resistance is located at $25,150, which is also the key breakout level. If Bitcoin breaks out, then Coinbase stock should rally as well. One could argue that the bar has been set too low to provide a floor for stocks and better odds for earnings growth. If the lows are overdue for bitcoin, then it should apply to COIN stocks as well.

Nasty numbers in the second trimester

Coinbase released its fiscal 2nd quarter 2022 results for the quarter ending June 2022. The company reported an earnings per share (EPS) loss of (-$4.98) vs. (-$1.23) estimates from analyst consensus, a loss of (-$3.75). Revenue collapsed (-63.7%) year over year (YoY) to $808.3 million missing (-868.39) consensus analyst estimates. Monthly Transactional Users (MTUs) grew 2.3% year-over-year to 9 million. Trading volume fell (53%) to $217 billion.

it gets worse

Coinbase provided its forecast for the upcoming quarter. For Q2 2022, MTUs are expected to be lower than Q2 2022. Total trading volume is also expected to be lower than Q2 2022. Subscription and service revenues are expected to be slightly higher. For the full year of 2022, Coinbase expects MTUs to average between 7 million and 9 million, up from the previous guidance of 5 million to 15 million. The average transaction value per user is expected to be in the low $20s. Revenue from subscriptions and services should exceed $600 million. Expectations have been set low.

Executive Director’s Comments

On the Q2 2022 conference call, CEO Brian Armstrong noted that things are never as good as they seem or as bad as they seem. He noted that this is the fourth crypto cycle they have gone through acknowledging that they are in a down cycle. During down cycles, the Company focuses on construction. Down cycles are a “breath of fresh air” compared to up cycles where they grow and scale frantically. Down cycles allow them to focus on product and platform innovations and pay off technology debt. The Company is also focused on managing expenses so that it can survive any kind of down cycle, for which they raised cash in 2021. He noted that cryptocurrencies are not linear and that any given quarter or year could be up or down. Instead, investors should focus on the business through price cycles to get a better picture. He summed up the challenge: “So the goal of these products, of course, is to help a billion people eventually access the primary account to access the open financial system and be the primary financial account for them.

BlackRock and Meta wins

Meta (NASDAQ: FB) has selected Coinbase as a partner to develop its cryptocurrency offerings in the metaverse. The world’s largest asset manager, BlackRock (NYSE:BLK), has selected Coinbase to provide users of its Aladdin software with access to cryptocurrency trading and custody through Coinbase Prime. Aladdin is BlackRock’s asset management platform used by over 200 institutions since 1999. BlackRock also launched its first private trust offering bitcoin exposure to US institutional clients. Many feel this has helped solidify the fund. bitcoin as more institutions enter the scene.

Is it time to throw in the towel on Coinbase stock?

This is what the charts say

Using the rifle charts on the weekly and daily time frames provides an accurate view of the price action playing field for COIN stocks. The weekly rifle chart peaked near $367.41 Fibonacci level (fib) before falling to the lows of $44.15 on June 30, 2022. The weekly rifle chart finally managed to bounce hard, the stochastic formed a mini puppy through the 20 band triggering the weekly low market structure (MSL) buy signal on the breakout of $71.81. The 5-period weekly moving average (MA) holds at $73.24 until the 15-period MA at $68.53. The 50-period weekly MA is falling to $180.75. The uptrend of the daily rifle chart has peaked as the momentum is slowing down. The daily stochastic crossed back down at the 70 band. The 5-period daily MA support is coming down at $89.89 and the 15-period MA is slowing down at $76.41. The 200-period daily MA stands at $168.77. Investors looking to trim their COIN positions can look for spikes above $100 to trim stocks. This would require the daily stochastic to recross and likely break through the 80 band. COIN has a cash value per share of $27.56 which would be a solid support area for those hoping for a deep pullback. Keep an eye on bitcoin as mentioned, COIN tends to follow the trend with bitcoin.

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