The first few months of performance for Coinbase (NASDAQ:COIN) stock following its public debut is a reminder of just how difficult IPO investing can be. The cryptocurrency-focused financial technology company was one of the most anticipated IPOs of the year, yet the stock is down over 20% since it began trading. Many investors thought that adding shares of this company for the long-term was a home run, yet the stock's performance has clearly not met those lofty expectations yet.
Keep in mind that cryptocurrencies have been experiencing extreme selling pressure since April, which likely hasn’t helped the sentiment surrounding the largest crypto exchange in the United States. While there is always the possibility of additional volatility in the prices of cryptocurrencies, Coinbase stock is starting to show a change in character that has patient investors intrigued. It might be time to buy the dip in this growing fintech company, and there are several reasons why. Let’s take a deeper look below.
Positive News Catalysts
Sometimes, all it takes is a few positive headlines to get a stock to break out of a downtrend. That looks to be the case with Coinbase, as the stock has rallied over 15% this week which could be due to a variety of positive news stories surrounding the company. First, the fact that major cryptocurrencies such as Bitcoin have seemingly found a short-term bottom after testing important support levels in late June has likely contributed to the rally in Coinbase, as the stock price tends to be heavily correlated with crypto prices.
There’s also the news that Coinbase will become the first company authorized to provide crypto custody and proprietary trading services in the country of Germany. This is important as it tells investors Coinbase was able to meet the stringent requirements of Germany’s Federal Financial Supervisory Authority and might be able to receive similar approval in other countries. Finally, Coinbase just announced that it is introducing a 4% APY crypto savings account that could entice more cryptocurrency enthusiasts to join the company’s platform. The bottom line here is that Coinbase has not benefitted from a lot of good news since its public debut, so these recent bullish catalysts could help to get the stock going.
Huge Growth Prospects
Another attractive reason to consider adding shares of Coinbase even after its deep post-IPO dip is the company’s growth prospects going forward. It’s hard to argue against the fact that cryptocurrencies are here to stay, and owning shares of a company that is playing a key role in developing the crypto economy could be a way for investors to capitalize on the industry’s growth. Coinbase’s Q1 earnings were resoundingly positive, as the company reported net revenue of $1.6 billion, up 792% year-over-year. The company also ended Q1 with over 56 million verified users, up 64% year-over-year and a confirmation that people continue looking to Coinbase first for their cryptocurrency needs.
These types of earnings results are a good indication of just how quickly Coinbase is growing and should not be overlooked even though the prices of cryptos are falling in the near term. What’s also interesting about this company is that it has both retail and institutional clients, which means its addressable market is huge. It’s already one of the largest financial exchanges for retail crypto investors, but the fact that it is a trusted name among institutional investors tells us that there is plenty of room to grow as crypto becomes more popular among “smart money”.
A Change in Character from a Technical Standpoint
Using technical analysis to drive your investment decisions can be a smart way to plan your trades and determine logical buy points. While technicals are not an exact science, they can help investors to pick up on trend changes like what we are seeing with Coinbase stock this week. The stock recently broke out of a period of lower highs on above-average volume, something it has not done since its public debut.
Coinbase stock has also reclaimed all of the short-term moving averages, another change in character for a stock that has not been unable to gain any upside traction since its IPO. It can really pay off to take note when these subtle updates occur in a stock's price action, as they can potentially be the early signs of a rally. If you are bullish on the long-term prospects of cryptocurrency and want to own the most trusted name in the industry, it might make sense to start adding shares of Coinbase soon.