If You Invested $1,000 in Coinbase in 2021, This Is How Much You Would Have Now

When it comes to innovative and disruptive enterprises, Coinbase Global (COIN 7.12%) likely comes to mind. The top digital-asset brokerage and exchange operator is at the forefront of trying to bring cryptocurrencies to the masses.

But shares haven’t been too kind to investors in recent years. If you invested $1,000 in Coinbase in April 2021, the time when it had its initial public offering (IPO), your position would be worth just $470 today (as of Feb. 5). That translates to a 53% decline, a disappointment when compared to the 15% rise of the Nasdaq Composite Index during the same time (including dividends).

Let’s look back at this top crypto stock‘s short history as a publicly traded company. Then we can figure out if investors should consider buying shares right now.

Coinbase’s wild ride

It was either extreme luck or a stroke of genius, but Coinbase couldn’t have entered the public markets at a better time. Stocks and cryptocurrencies were in a bull market run during the post-pandemic boom, lifting shares 43% from $250 at the IPO to their all-time high in November 2021. Even though the stock is up an incredible 231% since the start of 2023, it remains 67% below that previous peak.

The stock’s volatility mirrors the unpredictable nature of the underlying business. In 2021, Coinbase generated 93% of its revenue from transaction fees, which are derived from providing crypto trading services to both individuals and institutions. When asset prices are rising, as was the case about three years ago, the company’s financials reflect this.

Coinbase reported revenue growth of over 500% in 2021. And its net income totaled $3.6 billion. However, the good times were coming to an end.

As the Federal Reserve embarked on an aggressive rate-hiking cycle in early 2022, risky assets started to decline. With investors souring on cryptocurrencies, the once-thriving Coinbase came crashing back down. Sales slumped 59% in 2022. Even worse, the company posted a startling net loss of $2.6 billion that year.

Last year was one of optimization. Management has been focused on cutting costs across the board, a similar strategy to many other growth tech businesses, and losses have declined significantly.

With the overall crypto market roughly doubling in value in 2023, there could be better days on the horizon for Coinbase.

Is it time to buy Coinbase stock?

What’s encouraging is that despite this crazy ride, Coinbase is still here. And it remains a top crypto brokerage and exchange. That’s because ever since its founding, CEO Brian Armstrong has made it a point to work with regulators within existing rules, instead of trying to avoid them. This positions the company as a trusted and secure name in the industry, which might be a competitive advantage.

However, leadership wants to make the company more stable and predictable. In the third quarter of 2023 (ended Sept. 30), about half of Coinbase’s revenue came from its services and subscriptions segment.

This division, which includes things like staking and custody solutions, grew sales 59% year over year. As the custodian for many of the recently approved spot Bitcoin exchange-traded funds, Coinbase could see this segment continue on its path to becoming a more important financial driver.

That’s certainly what investors want to see, since it can ease the extreme volatility. But at the end of the day, buying Coinbase stock still represents a bet on the growth of the entire cryptocurrency industry. Instead of having to pick individual digital assets that might be tomorrow’s winners, investors can consider Coinbase as a way to gain adequate exposure to the space.

Shares aren’t cheap anymore at about 10 times sales. But the upside is certainly there for long-term investors who are bullish on this business and the industry. Just understand that this is still a very risky area of the market.

Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Coinbase Global. The Motley Fool has a disclosure policy.

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