We want to make it clear upfront that our recommendation heavily rests on our long-term positive view toward the disruptive nature of crypto, particularly on cross-border money transfers, payments infrastructure and tokenization. That said we do recognize, based on the limited trading history of COIN on the public exchange, the stock could be quite volatile driven by bitcoin price and newsflow. In the near term, we don’t foresee this high volatility would disappear even though it could abate. Therefore, we believe COIN is well suited for long-term-oriented investors who could tolerate near-term volatility.

Based on our experience covering this space and talking to investors, some investors sell crypto stocks after, say a miserable five-day bear run. This is partly driven by the generally accepted notion that it is difficult to: 1) predict the revenue/earnings trajectory; and 2) estimate the valuation of the stock with high confidence, at least at this early stage of the crypto development. Note, we are not asking investors to hold crypto stocks after a bad run, rather we urge investors to exercise additional caution before investing in crypto names. Again, we reiterate that COIN is not a stock for everyone, in our view. Another observation dug from its limited trading history is COIN tends to slide along with a rapid drop in bitcoin price. While there is merit to question COIN’s long-term revenue outlook if bitcoin price continues to go down for a long time, we think it is more reasonable to assume that volatility of bitcoin and other crypto actually spurs trading volume, and in turn revenue growth for COIN.  

Eoin Treacy's view

Here is a link to the full report.

The cryptocurrency sector is wide and varied with a large number of competing offerings. As the sector gains popularity, the number of tokens available for trade increases in an exponential fashion; right along with speculative interest. That suggests cryptocurrency exchanges are a viable way to gain access to the sector without going through the technical education required to buy and hold tokens.

Like any exchange the fate of the company is dictated by flow. Bitcoin has lost momentum over the last few months and increasingly has developing type-2 top formation completion characteristics. Ethereum is still accelerating higher while interest in the smaller alt-coins like Binance Coin and Dogecoin is going even quicker. That’s very reminiscent of the migration into altcoins in early 2018 after bitcoin had already peaked. If bitcoin breaks downwards from here, it will weigh on the wider sector.

Against that background Coinbase has unwound all of its post listing surge and is now steadying from the $250 area. If bitcoin breaks higher the share will likely surge and vice versa.