Coinbase Global Inc. is an American-based company that offers an open financial system ecosystem over a digital platform. Setting their footprints in the crypto market in 2012, the company has quickly established a platform for buying, selling, transferring, and storing cryptocurrencies. Coinbase, with its April 2021 public debut, now exists as a publicly-traded company on the NASDAQ. But the pivotal question that arises is – is the value of Coinbase stock on the verge of collapsing? If so, is there any potential way to exploit it? Let us delve into the details.
The first aspect to pay heed to is the volatility of the digital currency market, which is intrinsically tied to Coinbase’s fortune. Bitcoin’s price, in particular, has a direct impact on the stock price of Coinbase. With Bitcoin’s price on a rollercoaster ride, owing largely to various geopolitical and economic factors, there’s no certainty on the stability of Coinbase’s stock value.
Secondly, Coinbase’s dependency on transaction fees for its revenues plays a massive role in its stock price. Nearly 96% of Coinbase’s revenue comes from transaction fees. It’s clear then, that any factor negatively influencing crypto trading volumes could translate into a significant hit to Coinbase’s bottom line. If the crypto market experiences a downturn or even stagnation, trading volumes could slump, bringing down Coinbase’s revenues and, by implication, its stock price.
Observing the recent trends, it can be noticed that the competition in the cryptocurrency exchange market is becoming increasingly fierce, with more players entering the field. This added competition could erode Coinbase’s market share, potentially driving down transaction volumes and denting the company’s revenues – and again, by extension, endangering its stock price.
So, that brings us to the million-dollar question: if there’s a veiled speculative bubble and you believe the Coinbase stock will crater, how can you exploit this scenario?
One of the possible strategies to consider is known as short selling. This involves borrowing shares of Coinbase from a broker and selling them immediately at their current price. Then, if the stock price falls – as you predict – these can be repurchased at a lower price. After buying back the shares at the reduced price, they can then be returned to the broker, allowing the short-seller to pocket a profit from the difference.
However, this strategy is fraught with risk. If Coinbase’s stock price were to rise — perhaps on the back of a Bitcoin surge — instead of falling, the losses for a short seller could be substantial. Therefore, any investor considering such a strategy would need to be very confident in their belief that Coinbase’s stock is set to crater and should be fully prepared to handle the potential risks and losses involved.
Another less risky strategy for risk-averse investors could be to seek out and invest in companies which would be likely to profit from a decline in Coinbase’s fortunes. By identifying firms whose fortunes are inversely correlated with those of Coinbase, they could potentially offset any losses that might result from a decline in the value of Coinbase stock.
These strategies don’t come without their risks. However, if investors have an intimate understanding of the crypto market, are confident in their convictions about future price movements, and are willing to take calculated risks, they could capitalize on potential falls in the price of Coinbase stock. In this fast-moving, unpredictable field, knowledge, preparation, and risk management are key to exploiting any potential cratering of Coinbase stock successfully.
