Coinbase has been deploying tools to make their platform more inviting to institutions
Q1 2021 hedge fund letters, conferences and more
Back in 2012, Coinbase Global (NASDAQ:COIN) introduced a user-friendly platform through which people could buy and sell a then-relatively unknown asset known as Bitcoin (CCC:BTC-USD). Fast forward to 2021, when Bitcoin is universally known, and Coinbase stock itself is publicly available for trading.
It’s fair to say that cryptocurrency, and stocks associated with it, tend to be fast movers. I would advise caution, regardless of whether you’re a short-term trader or a long-term investor.
I would definitely apply this idea to Coinbase stock. It isn’t extremely volatile, but it has stolen wealth from ill-timed investors.
The share-price downturn has left some folks discouraged, I’ll admit. Still, a moderately-sized position could be warranted — and interest from institutions could be the key to an imminent turnaround.
A Closer Look at Coinbase Stock
I remember staring at my computer screen when Coinbase stock debuted on the Nasdaq Exchange. It was an action-packed day, to say the least.
Interestingly, the stock didn’t go public through an initial public offering (IPO). In actuality, it went public via a direct listing or direct public offering (DPO) on April 14 of this year.
Coinbase stock was assigned a starting price of $250 per share. To be honest, though, most amateur retail traders weren’t able to buy the shares at that price on that first day.
I watched with amazement as the stock price almost immediately went above $300 after the opening bell rang. At one point during that first day of public trading, the share price increased nearly 72% to $429.54.
As it turned out, Coinbase stock closed at $328.28, representing a 31.3% increase from $250. It was an auspicious start, but the enthusiasm apparently couldn’t be sustained.
By May 17, the share price had already fallen below $250. Moreover, the stock was down to $241.39 as of June 3.
It’s probably not a coincidence that the Bitcoin price also lost ground in May. Clearly, Coinbase stockholders will need to watch cryptocurrency prices carefully — and particularly Bitcoin, which tends to have a strong influence on anything crypto-related.
The Path to Success
While Coinbase is a popular cryptocurrency exchange, the platform undoubtedly has room to grow.
Last year, the company held $90 billion worth of assets on its platform.
Coinbase estimates that the total market capitalization of all cryptocurrency assets is $782 billion.
Therefore, the company’s platform currently only holds 12% of world’s crypto assets. Without a doubt, there’s the potential for expansion here.
At the same time, as Bitcoin and other cryptocurrencies gain mainstream acceptance, the total crypto market cap should increase.
That would benefit Coinbase as well. But the company shouldn’t solely rely on the participation of retail investors — even though it has a vast user base of 43 million of them.
The big money will come from institutional investors. Coinbase has 7,000 of them using the company’s platform, and a new service could bring more large-scale traders into the fold.
A Prime Brokerage Solution
In order to court these big-money investors, Coinbase Institutional recently introduced what’s known as Coinbase Prime.
This new platform will reportedly offer:
- Advanced trading capabilities
- Custody services
- Data analytics
- Cryptocurrency transfers between cold storage and trading balance
- Algorithms that minimize market slippage
- Deep liquidity via access to over ten venues
According to the company, Coinbase Prime is separate from Coinbase Exchange, and “was built with the specific requirements and services clients need to participate in digital assets.”
If all goes according to plan, many institutional investors looking to dip into the cryptocurrency trade could make Coinbase Prime their go-to service.
The Bottom Line on Coinbase
Going forward, the mainstreaming of cryptocurrency will be integral to Coinbase’s success.
And institutional interest will be a key component of that mainstreaming.
Coinbase clearly recognizes this — and the company’s new service should appeal to large-scale investors, while hopefully also providing a boost to the company’s flagging stock price.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Moadel has provided compelling content — and crossed the occasional line — on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
Article By David Moadel, InvestorPlace
