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Kynikos Associates founder and president Jim Chanos called Coinbase a “bubble stock” during a CNBC interview on Friday.
Last year, Coinbase became the first crypto exchange to list its stock (COIN) to much pomp and fanfare. But less than a year later, the value of the stock has crashed by almost 50 percent. At one point, its stock price was trading for as high as $400, a run which coincided with when Bitcoin’s price was also hitting its own ATH of around $69,000.
While both assets’ values are now a long way away from their ATHs, a cursory look at available data would show that investors who directly invested in Bitcoin have suffered lesser losses compared to those who invested in Coinbase stock.
“So Coinbase is what I’m kind of talking about. Coinbase is what we would call one of the bubble stocks. Obviously, it’s got a unique market niche as the, pretty much the only public crypto exchange and consequently has the valuation to go with it,” Chanos said during the interview.
He continued in his belief that Coinbase would “probably not be profitable this year with a $40 billion market cap.”
Factors Affecting Coinbase Stock
Speaking on why COIN has been underperforming, Chanos posited that the increased competition amongst crypto exchanges means that there would be “fee compression,” and since the exchange is dependent on these fees for its revenues, it stands to lose a lot if these are affected.
He continued that despite Coinbase’s best efforts to expand its business into other ventures, these activities might not have the desired effect on its stock performance.
He also pointed to the divergence between COIN and Bitcoin price. Before now, there was a positive correlation between the value of the stock and BTC, leading some investors to see them as having a similar value proposition. However, that appears to no longer be the case.
The emergence of more crypto-linked exchange-traded products and mining stocks has invariably reduced the demand for Coinbase stock.
Also, Coinbase faces more problems due to the general crypto industry outlook for the year. Many analysts predict that the value of Bitcoin and other digital assets would continue to trade in a range, and coupled with the ongoing political tensions around the world, investors might not be drawn to crypto investments.
For Coinbase, this would mean lower transactions which would affect its profitability.
Speaking on the above, Jere Ong, the principal analyst at JR Research, stated that 96% of the exchange revenue in the fourth quarter of last year came via fees charged on retail transactions.
This, he believes, shows the weakness of Coinbase’s business and thus, advises investors only to hold the exchange stocks for a “short term.”