Tolu is a cryptocurrency and blockchain enthusiast based in Lagos. He likes to demystify crypto stories to the bare basics so that anyone anywhere can understand without too much background knowledge. When he's not neck-deep in crypto stories, Tolu enjoys music, loves to sing and is an avid movie lover.
Coinbase saw considerable gains in its stock price on the back of a Bitcoin three-month high rally after announcing increased crypto investments.
Coinbase Inc (NASDAQ: COIN) stock jumped 3.2% in premarket trading and is currently trading at $257.32, thanks to Bitcoin. The exchange platform’s rise came about after the price of Bitcoin topped $50,000, the asset’s highest level since early May. The digital currency is on a three-month high with Bitcoin-holding companies benefitting from the resurgence. For instance, MicroStrategy (MSTR), a business analytics company, also saw its extensive Bitcoin investment portfolio jump 3.9%.
Apart from seeing its share price rise with Bitcoin, Coinbase is riding high on other fronts at the moment. The company recently announced plans to buy $500 million in cryptocurrency, and will begin investing 10% of its profits into a diverse range of digital assets. In a published statement, Coinbase co-founder and CEO Brian Armstrong said the leading exchange wants to increase its annual crypto investments. This is to cover as many versatile digital assets as possible. In Armstrong’s own words:
“We recently received board approval to purchase over $500M of crypto on our balance sheet to add to our existing holdings. And we’ll be investing 10% of all profit going forward in crypto. I expect this percentage to keep growing over time as the cryptoeconomy matures.”
Coinbase’s decision to periodically invest and add tokens to its crypto balance sheet also comes with a welcome milestone. The move underscores the company’s position as the first publicly-traded firm to feature a variety of digital assets on its balance sheet. According to a statement on Coinbase’s official company blog, these assets are Ether, DeFi tokens, and Proof-of-Stake assets.
What the Analysts Think of Coinbase Stock Being Tied to Bitcoin
Some analysts argue that the move to invest $500 million worth of crypto emphasizes the platform’s commitment to the crypto space. For instance, Mizuho analyst Dan Dolev applauded Coinbase’s decision to back their faith in crypto with practical action. “I like that they put their money where their mouth is”, he said. He further stated that this move pushes the company to be more crypto-centric even in its operations. Dolev concluded that Coinbase should build on this move by charging transaction fees in crypto and not fiat.
Despite Dan Dolev’s optimism in Coinbase’s latest move, others are a bit more skeptical. For example, Chris Kuiper suggests that Coinbase may be taking on significantly increased risk with such a purchase. The equity research analyst at CFRA says although Coinbase is underscoring its commitment to the crypto space, the investment increases vulnerability. He cited the direct link between Coinbase’s share price and Bitcoin’s market price and trading activity levels as the reason for his opinion.
Also, Chris Brendler’s take buttresses Dolev’s stance. The senior research analyst at D.A. Davidson also reiterated that the Coinbase share price often moves with Bitcoin, and is influenced by Bitcoin’s performance. Speaking with Insider, Brendler said, “…it certainly is a little bit scary when you’re putting cash in one of the raw materials that you’re already tied pretty closely to. He concluded by suggesting that the platform needs a bigger cash balance. This would help to weather possible storms because of its heavy investment in space.