In the gazettes, you can often read about the so-called "crypto winter" at the moment. This does not mean a new low pressure area, but the frosty mood on the capital markets towards digital currencies. This comes as no surprise, as Bitcoin & Co. have suffered some severe price setbacks in recent months. The market capitalization of all listed cryptocurrencies has almost halved since its peak in November.
In the wake of the cryptos, companies closely associated with the sector, such as Coinbase, are also being dragged down. In the past three months alone, the trading venue for cyber currencies lost more than a third of its capitalization. As a result, the stock is also trading well below its benchmark price of USD 250 when it went public last April.
Now to write off the crypto sector in general and Coinbase in particular would be hasty. After all, blockchain is a disruptive technology whose revolutionary potential is far from exhausted. Coinbase recognized this early on: In 2012, the company was founded with the aim of enabling everyone in the world to send and receive digital assets such as Bitcoin in a simple and secure manner. Today, ten years later, the platform has around 73 million verified users in more than 100 countries. Quarterly trading volume most recently exceeded USD 300 billion.
However, as Coinbase's business figures are closely correlated with crypto market prices, they can fluctuate significantly. This was most recently evident in the third quarter of 2021. For example, trading revenue plummeted by almost 30% from July to September. This, in turn, led to a decline in total revenues from USD 2.23 billion in the previous quarter to USD 1.31 billion, while net income attributable to common shareholders decreased from USD 6.42 to USD 1.62 per share. The analyst consensus is now for growth to resume in the final quarter. The average estimate for sales is USD 1.9 billion, while earnings per share are expected to increase slightly to USD 1.90.
In order to sustainably boost growth, Coinbase is also embarking on an expansion course. For example, the company acquired derivatives trading venue FairX earlier this year. The goal of the acquisition is to bring crypto derivatives to the market, which will ultimately be offered to all Coinbase customers in the US. In addition, Coinbase gave the go-ahead for its own NFT marketplace last fall. The so-called non-fungible tokens are a type of digital asset that can be used, for example, to authenticate virtual property. A look at NFT sales in the third quarter, where they surpassed the USD 10 billion mark for the first time, shows how the business is booming. The potential of NFTs continues to be enormous. For example, social platforms such as Roblox or Twitter are already using blockchain technology, and with the Metaverse, the next future market is already waiting in the wings.
Diversifying revenue beyond traditional cryptocurrency trading could prove to be a catalyst for the stock. Bank of America is positive in this regard and raised its rating on Coinbase stock from "Neutral" to "Buy" earlier this year for this reason. The experts forecast that revenues from subscriptions and services will grow from 12% in the third quarter of 2021 to 16% of total revenues in 2023. But it's not just BoA that sees potential in the company; the overall analyst consensus is bullish on Coinbase. The 12-month price forecasts of 20 studies range from USD 220 and USD 600, resulting in a median target of USD 346, which represents a potential of 81%. However, even though there is much to suggest that crypto assets will become increasingly successful in the mainstream of the financial world, uncertainties remain, such as the regulation of crypto markets, which has been discussed in many places.
The current high volatility in the crypto sector shows that money invested quickly can also be gone again quickly. On the other hand, the high price fluctuations allow for extraordinary conditions in structured products. The proof of this is provided by the new Softcallable Barrier Reverse Convertibles on Coinbase. The BRCs allow the underlying to experience setbacks of almost 45% without compromising the profit opportunity. The yield is also more than respectable: The CHF-denominated product holds out the prospect of a coupon of 19.00%, which is almost "gigantic" for a single BRC. Such yields are usually only possible with multi-products. The USD variant yields an even somewhat higher interest rate. With otherwise identical features, it even offers a coupon of 21.00% p.a.. The term of both securities is a maximum of 12 months, the first observation day takes place after 6 months.
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