Following the Q1 results released earlier this week, Coinbase (NASDAQ:COIN) shares dumped 20%. However, it closed up almost 9% yesterday, with a further 9% gains seen in pre-market. We think that Coinbase shares are now looking attractive for long-term appreciation. Here’s why.
Oversold from recent results
Firstly, we think the market overreacted to the recent results. It’s been a theme in earnings misses so far this year, with sometimes only modest misses from companies seeing a large knee jerk move lower.
We’re not saying that the Coinbase Q1 results were a modest miss, the loss of $430m is significant. The fall in trading volume to $309bn is also down on both the previous quarter ($547bn) and on the same quarter last year ($335bn).
Yet there were still many positives to take from the report. For example, the assets on platform grew to $256bn, up from $223bn from the same quarter last year. Monthly transacting users hit 9.2m, again up significantly from the Q1 2021 figure of 6.1m.
Crypto in a cyclical move
Secondly, we think that the crypto sector as a whole goes through volatile cycles, but this isn’t the end. From a long-term view, it makes sense then to buy when the sentiment turns sour, and sell when it gets greedy.
This was alluded to in the report from Coinbase. It said that “you can expect volatility in our financials, given the price cycles of the cryptocurrency industry. This doesn’t faze us, because we’ve always taken a long term perspective on crypto adoption”.
From that angle, the 78% fall in Coinbase shares in the past year reflects the downturn in the cycle, and one that we feel won’t remain as low in the future.
Getting exposure via Coinbase shares
Finally, we like Coinbase shares as a way of getting exposure to Bitcoin. Although the correlation isn’t perfect, the share price should reflect the movements in the largest cap coin. Owning exposure via shares is preferred by some investors. It means they don’t have to hold crypto in a wallet, and exposure themselves to potential risks involved with that process.
Taking exposure via shares can therefore be seen as a lower risk alternative to dipping the toe into the water for crypto. We agree with this thought, and would diversify our crypto stocks to include others, including miner Argo Blockchain for example.
AlphaPicks does not own shares in Coinbase or Argo Blockchain. Please read our full disclaimers regarding the information published. The above is intended for informative purposes only and should not be taken as investment advice. Trading on leverage can result in losses larger than your initial deposit.