Coinbase (COIN) Faces Major Questions Amid Fed Policy and Crypto Rout – 24/7 Wall St.
Crypto darling Coinbase faces two existential threats; Federal Reserve Chairman Jerome Powell’s hawkish rate policy unveiled last week is anathema to growth investors, and the company’s revenue growth hinges on the performance of the cryptocurrency.
At the Fed’s annual economic conference in Jackson Hole last week, Powell reaffirmed the central bank’s commitment to reducing decade-high inflation with high interest rates for an extended period. Yet he acknowledged the difficult balance he must strike.
“While higher interest rates, slower growth and looser labor market conditions will reduce inflation, they will also hurt households and businesses,” Powell acknowledged, according to the official transcript of his speech. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.
Rising interest rates make growth assets like Coinbase stocks less attractive than fixed income securities or dividend-paying stocks. Digital assets do not pay dividends and their growth depends on the performance of a single asset.
“Many cryptocurrencies have exhibited the classic hallmarks of bubbles, including new paradigm justifications, widening retail enthusiasm, and extrapolated price expectations dependent on finding the biggest fool,” said Bank of England Governor Mark Carney, according to a March 2018 article by Reuters.
Additionally, plotting Coinbase’s revenue history against the average market capitalization of all cryptos at or near the end of each quarter yields a correlation coefficient of around 84%, sufficient to show a direct relationship.
In the fourth quarter of 2021, Coinbase’s revenue reached nearly $2.5 billion, and the average crypto market capitalization reached $2.37 trillion. In the second quarter of this year, Coinbase’s sales fell to $808 million and the average crypto market cap shrank to around $947 billion.
Traders are bearish.
Fintel’s put/call ratio reflected a bullish/bearish balance until February. Since the spring, more and more traders have been selling put options. The company sports a put/call open interest ratio of 1.01, a bearish indicator adding pressure to COIN stock.
Shares of Coinbase (US:COIN) rose 1% on Monday, outperforming the broader market in a rare performance. The shares have fallen in the previous five sessions and are down 73% this year.
This article was originally published on Fintel