This Nasdaq crypto play has Wall Street shaking its head

Even as cryptocurrencies bounce back, this stock isn't getting much love.

| More on:
woman fixing an electronic device

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Investors always like to get in on hot new trends, and the cryptocurrency revolution certainly qualifies. Interest in digital currencies intensified toward the end of 2020 and into 2021. And even after a massive crash that lopped half or more off the prices of some tokens, the area is still getting a huge amount of attention from investors trying to gauge the long-term prospects for cryptocurrencies and other related applications made possible by blockchain technology.

The Nasdaq exchange recently became the home of the hottest publicly traded crypto stock. Coinbase Global (NASDAQ: COIN) has become a leading provider of cryptocurrency brokerage services, and its stock was up by almost 2% in late afternoon trading Wednesday as prices of leading cryptocurrencies rebounded from recent declines. But at least one Wall Street analyst is less than optimistic about Coinbase's long-term prospects.

Not quite glittering like gold

Coinbase's gain came as prices for several major cryptocurrencies made solid advances. Most top tokens were up by anywhere from 5% to 13% on the day, even though many had fallen to their worst levels in months just recently.

It's reasonable for Coinbase's stock price to track the ups and downs of crypto tokens. When investors are excited about cryptocurrencies, that leads to an increase in trading, which gives the company more revenue. If investors decide that the space no longer has any long-term promise, then Coinbase's trading volumes would likely suffer, hurting its revenues.

In the short run, Coinbase has emerged as a premier provider of crypto brokerage services. Many institutional investors have joined the individual investors who gravitated to its platform, and the growing popularity of its Coinbase Pro offering could well help the company build even greater customer loyalty.

Say goodbye to fees?

On the other hand, one Wall Street analyst believes that Coinbase faces a much steeper uphill battle. Raymond James started covering it Tuesday and gave it an underperform rating.

It's undeniable that Coinbase has a significant head start in gathering people interested in cryptocurrency trading. In a business in which reputation is key, it has managed to overcome the innate distrust that many investors have about crypto, allowing it to add large numbers of new accounts over the past year.

As Raymond James sees it, though, the problem is that there's nothing stopping other companies from entering the space and challenging Coinbase's leadership role. Because the platform derives a large portion of its overall revenues from trading commissions, the emergence of new competitors could challenge its ability to keep charging as much as it does.

Investors don't have to look too far to find parallels. Stockbrokers used to take in impressive amounts of fee revenue. Even during the discount brokerage era, major players still brought in billions of dollars from customers paying to trade stocks. Yet as time went on, intensifying competition forced commissions ever lower, a trend that culminated in the recent elimination of stock trading fees by nearly every major brokerage.

If the same thing happens in the realm of cryptocurrency trading, then Coinbase's stock could continue along the downward slope it has been on since its first day of trading. If the company can keep adding useful new services and features that allow it to differentiate itself from would-be disruptors, however, then its stock price might yet return to the levels it was trading at a couple of months ago.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on International Stock News

A young entrepreneur boy catching money at his desk, indicating growth in the ASX share price or dividends
International Stock News

Why this high-flying investor is selling Tesla shares and buying this US tech stock instead

Ark Invest funds have been selling the electric vehicle maker's stock over the last few weeks and reinvesting the proceeds…

Read more »

two computer geeks sit across from each other with their laptop computers touching as they look confused and confounded by what they are seeing on their screens.
International Stock News

Is Nvidia stock heading to $175?

The bulls are lining up ahead of Nvidia's earnings report next week.

Read more »

A woman holds a bitcoin token in her hand as she smiles at the camera in the background.
International Stock News

Bitcoin keeps soaring. Could it hit $95,000 this week?

Could the current crypto rally have enough juice to push the coin above that once-inconceivable level?

Read more »

A boy in a green shirt holds up his hands in front of a screen full of question marks.
International Stock News

2 reasons to buy Nvidia shares before November 20 (and 1 reason to wait)

This top AI stock has soared nearly 200% this year!

Read more »

A group of friends push their van up the road on an Australian road.
International Stock News

Why Tesla stock just pulled back

Tesla finally hit a speed bump after a blistering post-election rally.

Read more »

Two happy excited friends in euphoria mood after winning in a bet with a smartphone in hand.
International Stock News

Why Tesla stock keeps going up

Tesla stock costs more than $1 trillion now. Is that too expensive?

Read more »

A businessman in soft-focus holds two fingers in the air in the foreground of the shot as he stands smiling in the background against a clear sky.
International Stock News

2 Numbers I'll be looking for on November 20 when Nvidia reports earnings

While many analysts and investors will be looking at revenue and profit growth, two other figures are more important to…

Read more »

A man wearing a blue jumper and a hat looks at his laptop with a distressed and fearful look on his face.
International Stock News

Magnificent Seven: Unstoppable tech stock giants or risky buys?

Did you know the "Magnificent Seven" moniker was meant as a warning, not an endorsement? Check out the risks and…

Read more »