While many Coinbase bulls argued the company would be immune from the price volatility of individual cryptos like bitcoin, ethereum and dogecoin, that has clearly turned out to not be the case.
Coinbase is still tied to the fortunes of bitcoin, even if users continue to conduct transactions regardless of whether the prices of cryptos go up or down. Simply put, Coinbase generates less revenue when prices are falling.
“Coinbase derives 90% of its revenue from trading fees that are assessed as a percentage of the transaction,” Chris Kuiper, an analyst with CFRA Research, said in a report this month.
“Even its other revenue sources, such as custody services, are also based on a fee as a percentage of the assets stored and therefore correlated to the price of cryptoassets,” Kulper added.
Of course, all the volatility could create a good opportunity for those brave enough to buy the dips.
“If the future of finance, stores of value and innovative ways of transacting goods and services becomes increasingly tied to the blockchain, we believe that [Coinbase] stands to be a major beneficiary,” Canaccord Genuity analyst Joseph Vafi said in a report last week.
Vafi added that Coinbase is “a kind of ‘super on-ramp’ to everything crypto,” but he conceded that “today that on-ramp is mostly comprised of trading revenue.” Still, he thinks the stock’s big pullback now makes it more attractive for long-term investors.
But Coinbase is not the only crypto-related stock that is pulling a Tom Petty and free falling lately.
The mining companies tend to be more subject to the daily fluctuations in bitcoin prices.