- Coinbase(COIN) stock is highly vulnerable to shocks from the world of cryptocurrency.
- Regulators in multiple world geographies may be signaling imminent crackdowns on cryptocurrency trading.
- This is potentially bad news for COIN stock, so it makes sense to simply avoid investing in Coinbase.
Due to the company’s cryptocurrency-centric business model,Coinbase (NASDAQ:COIN) is highly susceptible to what might be called “headline shocks.” Plus, COIN stock’s close correlation toBitcoin(BTC-USD) — and the company’s exposure to regulatory crackdowns in multiple countries — means that it’s probably not safe to take a long position now.
Investors can certainly choose to hold cryptocurrency in their portfolios. However, it’s important to maintain a very small position size and understand the risks involved. Unfortunately, some folks didn’t follow these guidelines in 2020’s first half. As a result, their investments likely lost value as “crypto winter” set in.
Lately, cryptocurrency has earned its reputation for being the Wild West of the financial markets. For example, as we’ll discover, more than one cryptocurrency platform has limited or suspended withdrawals. One of those platforms, by the way, is backed by Coinbase.
Meanwhile, regulators are taking notice of crypto’s growing pains — and they may be signaling swift, severe action in the near future.
What’s Happening With COIN Stock?
If you’re going to take a chance with an investment in Coinbase, you’d better be prepared to ride along with Bitcoin’s price moves. The correlation is quite strong, and this hasn’t benefited Coinbase’s shareholders in 2022 so far.
As you may be aware, Bitcoin crashed during the past year from nearly $69,000 to less than $20,000. There was a slight recovery to $22,000 not long ago, but the damage has already been done and a great deal of wealth has evaporated.
COIN stock has been on a similar trajectory. Recently valued at around $60, the stock traded at $368.90 not too long ago. Suffice it to say, then, that anyone who loaded up during the Coinbase initial public offering (IPO) is probably quite disappointed now.
One contributing factor has been the threat of imminent regulatory crackdowns on cryptocurrency trading. For example, Federal Reserve Vice Chairwoman Lael Brainard has made it crystal-clear that shewants tougher regulationsfor the crypto industry. Brainard also seems to be of the opinion that the cryptocurrency industrycould pose a threatto the financial system.
Not a Good Sign
Rumblings of potential regulatory action upon the cryptocurrency industry have also been heard from other government entities. These include theU.S. Department of the Treasury, theBank of Englandand theEuropean Systemic Risk Board.
Their concerns are only reinforced by worrisome reports concerning multiple cryptocurrency platforms. In particular, Singapore-basedVauldsuspendedwithdrawals, trading and deposits on its platform not long ago. Notably, Vauld is backed by Coinbase.
Cryptocurrency lenderCelsiusalso reportedly suspended crypto withdrawals at one point recently. Additionally, theCoinLoanplatform imposed a withdrawal limit of $5,000 per day.
Clearly, it’s not a good sign that clients’ accounts are being restricted on these platforms. Regardless, Coinbase Institute Chief Economist Cesare Fracassi declared that “Crypto assets todayshare similar risk profilesto oil commodity prices and technology stocks.” There haven’t been prominent news items lately about people being unable to liquidate and withdraw their tech stocks or oil futures contracts, though. So, Fracassi’s comparison doesn’t seem to hold up.
What You Can Do Now
Holding COIN stock is a highly risky proposition as volatility is likely to persist. Furthermore, Coinbase, as a crypto trading platform, is susceptible to regulatory scrutiny.
Folks who bought Coinbase shares at the wrong time are deeply underwater in their investment. You don’t have to join them and share their troubles. All in all, it’s fine to stand behind the blockchain movement in general, but there’s no basis for gambling your money on Coinbase.
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