To The Moon

For some time, I’ve been analyzing Coinbase ($Coinbase Global, Inc.(COIN)$ ) as a potential investment through the lens of Peter Lynch's insights on cyclical stocks from One Up on Wall Street. Cyclical stocks, as Lynch emphasizes, are all about timing. The key is to invest when they're undervalued during a down cycle, but only after confirming they are genuinely cyclical. So, why do I see Coinbase fitting this profile?

First, Coinbase has a significant regulatory advantage. As one of the few cryptocurrency exchanges regulated by the SEC in the U.S., and with established partnerships with banks for crypto services, Coinbase essentially operates as a crypto clearinghouse with minimal competition. This strong position could become even more valuable as the crypto industry matures.

Second, there's the crypto adoption potential. While crypto is not yet mainstream, its adoption is on the rise, particularly with the policy shifts under the new Trump administration. I liken this to the early days of the NASDAQ—investing in Coinbase now feels like investing in the infrastructure of a burgeoning industry. Imagine if I told you back then that you could buy a piece of the NASDAQ infrastructure - an exchange that facilitates over US$100B a day - would you want to buy a share of it?

Third, Coinbase's business exhibits a clear cyclical nature, closely tied to the boom-and-bust cycles of the crypto market. The company's revenue soars when crypto prices are high and contracts when they fall. This mirrors the cyclical pattern Lynch described in his book, where revenue flows with market trends.

Currently, the market seems misaligned with Coinbase's actual business model, as the stock price fluctuates heavily based on crypto prices. But just as a dip in stock values doesn't spell doom for the NASDAQ exchange, Coinbase's role as a crypto platform remains robust despite market downturns. Although it could mean potentially lower trading volume for users, we must also remember that this is cyclical in nature and does not represent a downfall for the company

This misalignment presents an investment opportunity. When $Coinbase Global, Inc.(COIN)$ 's price crashes, it reflects the downturns inherent in any cyclical business. As Warren Buffett reminds us, all businesses face challenging periods, and those shouldn't deter long-term investments.

Through my valuation analysis, I estimate Coinbase's intrinsic value to be around $180. However, staying true to my investment discipline, I only buy at a 20% discount to intrinsic value. That means I'm waiting for $COIN to dip below $150 before making a move.

What's your take? Is Coinbase on your radar as well, or do you see other opportunities in the crypto space?

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