Cryptocurrency Marketplace Coinbase (NASDAQ:COIN) stock activated a Short press on its horrendous second quarter 2022 earnings report. The stock is still down (-66%) for the year, even after more than doubling from its low of $44.15 on June 30, 2022. The stock had a short interest at 21% en route to its earnings report, leading to a tight squeeze to $98.70 before it pulled back. The favorable CPI data indicating a possible spike inflation also added to buy. Coinbase went from a net profit of $771 million in the first quarter of 2021 to a loss (-$430 million) a year later, moving nearly $1.2 billion from big green to deep red. Competition from regular brokers and fintechs Like it Robinhood (NASDAQ: HOOD) continues to build as they provide more access to cryptocurrency markets. Coinbase has grown its institutional client base north of 13,000 clients through its Coinbase Prime platform. Institutional clients account for over 75% of trading volume and trading volume is directly linked to revenue. Bitcoin has fallen (-48%) this year but is trying to stage a rally. Therein lies the key.
Where Bitcoin goes… That’s how COIN goes
Bitcoin plunged from a high of $69,000 on November 8, 2021 to a low of $17,567 on June 18, 2022. It is no coincidence that the collapse of Coinbase stocks has coincided with the collapse of bitcoin prices. You can link the price of Coinbase shares to the movement of bitcoin. When bitcoin collapsed, so did Coinbase’s shares. Bitcoin has attempted to break out after basing the $20,000 price level. The main resistance is at $25,150 which is also the main breakout level. If bitcoin manages to break out, Coinbase shares should also rise. You could argue that the bar has been set very low going forward to provide a floor for the stock and a better chance of profit. If the lows for bitcoin lag, then so should COIN stocks.
Bad numbers in the second quarter
Coinbase has released its fiscal results for the second quarter of 2022 for the quarter ended June 2022. The company reported a (-$4.98) loss in earnings per share (-$4.98) versus (-$1.23) analyst consensus, a (-$3.75) miss. Revenues were down (-63.7%) year-over-year (year-on-year) to $808.3 million, missing (-868.39) estimates from consensus analysts. Monthly transaction users (MTUs) were up 2.3% year-over-year to 9 million. Trading volume fell (53%) to $217 billion.
Coinbase released its forecast for the next quarter. For Q2 2022, MTUs are expected to be lower than Q2 2022. Total trading volume is also expected to be lower than Q2 2022. Subscription and service revenues are expected to be slightly higher . For the full year 2022, Coinbase expects MTUs to average between 7 million and 9 million, up from the previous expectation of 5 million to 15 million. The average transaction value per user is expected in the low $20s. Subscription and service revenue should exceed $600 million. Expectations are low.
In the Q2 2022 conference call, CEO Brian Armstrong pointed out that things are never as good as they seem or bad as they seem. He noted that this is the fourth crypto cycle they have gone through and acknowledges that they are in a down cycle. During down cycles, the company is focused on building. Down cycles are a “breath of fresh air” compared to up cycles where they are frantically growing and scaling up. Downcycles allow them to focus on product and platform innovations and pay off technical debt. The company is also focused on managing costs so it can weather any type of down cycle, for which they raised funds in 2021. He pointed out that crypto is not linear and that every quarter or year can be up or down. Instead, investors should focus on the company during price cycles to get a better picture. He summed up the challenge: “The goal of these products, of course, is to help 1 billion people access ultimately the primary access to the open financial system and be the primary financial account for them.
BlackRock and Meta wins
Meta (NASDAQ:FB) selected Coinbase as a partner in developing its crypto offering in the metaverse. The world’s largest asset manager BlackRock (NYSE:BLK) has selected Coinbase to give its Aladdin software users access to crypto trading and custody via Coinbase Prime. Aladdin is BlackRock’s wealth management platform that has been used by more than 200 institutions since 1999. BlackRock also launched its first private trust offering bitcoin exposure to US institutional clients. Many believe this has helped solidify the bottom in bitcoin as more institutions come into the picture.
This is what the charts say
Using the gun cards on the weekly and daily time frames provide an accurate picture of the playing field of price action for COIN stocks. The weekly gun chart peaked near $367.41 Fibonacci (fib) level before plunging to the low of $44.15 on June 30, 2022. market structure layer (MSL) buy signal on the breakout of $71.81. The weekly 5-period moving average (MA) support at $73.24 through the 15-period MA at $68.53. The 50-period weekly MA drops to $180.75. The daily gun chart’s uptrend peaked as momentum slows. The daily stochastics crossed back to the 70 band. The daily 5-period MA support is down to $89.89 and the 15-period MA is slowing to $76.41. The 200-period daily MA stands at $168.77. Investors looking to shorten their positions on COIN may look for spikes above $100 to shorten stocks. This would require the daily stochastics to go back up and probably through the 80 band. COIN has a present value per share of $27.56, which would be solid support area for those waiting for a deep pullback. Keep an eye on bitcoin as mentioned, COIN tends to follow the trend with bitcoin.