Company Overview

Zacks Rank #1 (Strong Buy) stock Coinbase Global (COIN) is the third-largest crypto exchange globally and the leading crypto exchange in the United States in terms of trading volume. Coinbase, which was founded in 2012, has one of the broadest selections of cryptocurrency listings to trade. Clients can choose to trade some ~250 cryptocurrencies, three fiat currencies, and nearly 600 crypto trading pairs.

Institutional Business is Exploding

Luckily for Coinbase, two of its biggest competitors, FTX (now defunct with former CEO Sam Bankman Fried in prison) and Binance, found themselves in major legal trouble. Meanwhile, Coinbase CEO Brian Armstrong has laser-focused his company on being compliant since inception – a rare trait for a crypto exchange in the wild west of the crypto industry.

Earlier this year, Armstrong and Coinbase’s reputation paid off when several long-awaited Bitcoin ETFs launched following years of standoff with the U.S. Securities and Exchange Commission (SEC). It wasn’t long before it became clear that the Bitcoin ETF launch was the most successful in history, far surpassing the debut in the SPDR Gold Shares ETF (GLD) back in 2004. ETFs such as BlackRock’s (BLK) iShares Bitcoin Trust (IBIT) and Fidelity’s Wise Origin BTC ETF (FBTC) have attracted billions in inflows, gained more than 70% since their debut, and were already among the top 15 ETFs within weeks of launching. Why is the historic Bitcoin ETF launch a bullish catalyst for COIN? Coinbase is the custodian exchange for nearly every active Bitcoin ETF. In other words, they get a piece of the casual crypto investor who prefers the ETF over Bitcoin itself, and institutional investors aiming to add exposure for clients via ETFs.

Correlation to Bitcoin

Coinbase is highly correlated to the world’s largest and most followed cryptocurrency, Bitcoin. Bitcoin has been the most consistent and best-performing asset over the past decade, and the rampant bull market is unlikely to subside for the following reasons;

Bitcoin is breaking out to fresh all-time highs for the first time in years. Each time these multi-year breakouts have occurred, Bitcoin has produced meteoric returns.

Image Source: TradingView

Election year seasonality: Like with equities, studying Bitcoin’s historical seasonality can pay dividends. In the past three election years, Bitcoin returns were as follows: 2012 +272.4%, 2016 +161.1%, and 2020 +302.8%.

The Upcoming Bitcoin Halving: The Bitcoin halving is an event that occurs approximately every four years, reducing the reward miners receive for validating and adding new blocks to the Bitcoin blockchain by half. Though the number of halvings in Bitcoin’s history is only three, and history is no guarantor, the stats suggest that bulls should stay the course for at least the next year. Bitcoin has delivered at least triple-digit one year after the halving, including +7,715% in 2012/13, +283% in 2016/17, and +423% in 2020/21!

Cash Cow

Coinbase has a clean balance sheet, unlike many industry peers. The company has $5.7 billion on hand, which is impressive when you consider COIN has been growing revenue at a juicy double-digit clip in recent quarters.

Image Source: Zacks Investment Research

Coinbase also has a positive Zacks ESP (Earnings Surprise Prediction) score. Our in-house studies show that when a company has a positive ESP score and a Zacks Rank of #1 (like COIN), earnings are likely to surprise to the upside (COIN reports 5/8).

Bull Flag Reset

COIN shares are up nearly 300% over the past year, affording investors very few “clean” entry points. However, the stock is finally taking a breather and setting up in a picture-perfect bull flag pattern, offering investors who missed the first move another shot.

Image Source: TradingView

Bottom Line

Coinbase is the crypto exchange leader from both a retail and institutional perspective. As the stock retreats in the short term, several bullish catalysts remain, offering investors a juicy reward-to-risk zone to exploit.

— Andrew Rocco

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Source: Zacks