Why Coinbase’s Stock Was Rising With Popular Cryptocurrencies Today
Cryptocurrency exchange shares Global Coinbase (NASDAQ: COIN) got up on Monday. As of 11:20 a.m. EDT, the stock was up more than 5%. And that’s because popular cryptocurrencies like Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) were increasing over the weekend. For its part, Dogecoin (CRYPTO: DOGE) is down, but there is more news to report that may have implications for Coinbase as well.
Last week, the CEO of AMC Entertainment announced that digital gift cards can now be purchased with Dogecoin. In the near future, the company hopes to allow Dogecoin and other cryptocurrencies to be used to purchase tickets directly through its payment system. But for now, gift cards can be purchased through a third party.
Trade volume for Dogecoin increased at the time of this announcement, according to data from CoinMarketCap. And even though the price of Dogecoin is modestly declining today, the trading volume is still relatively high.
AMC news is just one factor boosting Dogecoin volume these days. But transactions on the Bitcoin and Ethereum blockchains also appear to be on the rise in recent times. Trading volume varies considerably from day to day, but the volume of Bitcoin and Ethereum recently exceeded their six-month averages, as the chart shows.
Coinbase makes money on the volume of cryptocurrency exchanges. In the second quarter of 2021, 88% of the company’s revenue was generated from the invoicing of transaction fees. And keep in mind that this income stream is extremely profitable. It posted a whopping $ 1.1 billion adjusted profit before interest, taxes, depreciation, and amortization (EBITDA) for just $ 2.2 billion in total revenue.
Here’s the problem: Coinbase stock actually looks like high value stock, trading at just 19 times trailing profits. The reason it is trading at such a cheap valuation is because the market thinks the cryptocurrency trading volume is going to drop and therefore the company’s gravy train will stop.
However, there are signs that the volume of cryptocurrency trading is holding steady or even increasing. Because of this, Coinbase stock could surprise investors when the company releases its third quarter financial results in a few weeks.
There is one more thing that could drive the price of Bitcoin higher in recent days, and it has implications for the future. According to CoinDesk, someone placed a $ 1.6 billion purchase order for bitcoin last week. At first glance, this shouldn’t be a big deal, given that Bitcoin is valued at over $ 1,000 billion. However, such a large purchase temporarily blocked the network and may have contributed to the rise in prices in recent days.
Could we see more big players entering Bitcoin and other cryptocurrencies on time, making more big purchases like what we saw last week? Yes, there are reasons to think so. For example, billionaire investor Bill Miller, chief investment officer of Miller Value Partners, recently said he believes in Bitcoin today the way he believes. Amazon.com after the dot-com bubble burst.
Interest from billionaires like Miller could lead to increased demand. And with many investors and mining companies holding their bitcoins, there may not be enough liquidity in the market to meet this demand. This could drive up prices and keep the buzz for cryptocurrencies going among retail investors, which is good for Coinbase’s trading income stream.
Of course, it is not a given that the volume of cryptocurrency exchanges will continue to increase, benefiting Coinbase. However, this appears to be what is happening now and there is reason to believe it could continue. This will be something to watch out for in the coming weeks, especially as Coinbase’s third quarter report approaches.
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