Stock Of The Week: Expert Opinion On What Stock To Watch

Experts share their opinions to help with your investment decisions.

Michael Kamerman, CEO of Skilling, shares his opinion on what stock you should watch this week.

Coinbase

Although we are talking about stocks, in the past few weeks the spotlight has been on cryptocurrency market movements and stocks related to them. It’s fair to say that it’s been a rather eventful week for the crypto market…

Ethereum lost 21%, Bitcoin was down to its lowest level since December 2020,  Solana plunged 24% and Cardano dropped 22%.

The individual coins themselves have suffered from dips, exacerbated by crypto lenders such as Celsius and subsequently trading giant Binance pausing withdrawals, swaps and transfers on their platform. As a result, there has been a significant shift in sentiment within the crypto space, which is sure to affect stocks that are directly linked. One such stock is Coinbase.

Despite reaching a market cap on IPO day of $86 billion, Coinbase has fallen from grace, reaching values below $13 billion, with the stock now being on a clear downtrend following its IPO open price of $381. With current sentiment toward cryptocurrency cooling, this dip may carry on.

The majority of Coinbase revenues come from transaction fees and commissions. If there’s less trade – reducing the value of the traded assets – it seems inevitable that the company revenues would take a hit. This is exactly what happened as total trading volume dropped from $547 billion in Q4 to $309 billion in Q1 2022, and retail monthly user transactions fell from 11.4 million in Q4 2021 to 9.2 million in Q1 2022. Those factors combined have seen total revenue fall 27% compared to last year, as Coinbase reported a net loss of $430 million in the first quarter.

On top of that, there is a clear correlation between cryptocurrency value and Coinbase’s share price. For example, an overlay of the Ethereum price chart and Coinbase price chart show a really strong correlation between the two.

From a business perspective, Coinbase announced in February this year its plans to add 2,000 employees across Product, Engineering and Design in 2022. However, this only added to expenditures resulting in the company then freezing its hiring process in June while also rescinding employment offers and refusing to rule out further job cuts.

Traders who are debating whether to invest or sell the stock should take into account the current market sentiment on cryptocurrency and weigh up the pros and cons of buying the dip, while also evaluating whether the company’s plans are viable. Questions to ask oneself: will the shares recover, and most importantly, are you willing to invest in them?

Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. 

Not investment advice. Past performance does not guarantee or predict future performance. Trading cryptocurrency is not available for UK retail clients. 

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