Could Coinbase Stock Crash 90%?

Core Viewpoint - Coinbase Global stock has decreased by nearly 25% over the last month, primarily due to a sharp decline in crypto markets rather than company-specific issues [2] Group 1: Market Dynamics - Bitcoin prices fell from over $120,000 in October to the low-$80,000s in November, significantly impacting Coinbase's stock [2] - A wave of involuntary deleveraging in crypto markets led to automatic selling, exacerbating the price crash [7] - Uncertainty regarding potential Federal Reserve rate cuts in December added pressure on risk assets, particularly in the crypto sector [7] Group 2: Company-Specific Factors - Coinbase's high fixed-cost structure means that declining crypto prices negatively impact its operating leverage, leading to reduced transaction revenues [7] - Monthly Transacting Users (MTU) metric tends to drop as retail investors withdraw during downturns [7] - Institutional fees associated with Assets Under Custody decrease as asset values decline, further affecting revenue [7] Group 3: Financial Performance - Coinbase's revenue growth has been strong, with approximately 23% annual growth over the past three years and nearly 49% growth in the last twelve months, increasing total revenue from around $4.7 billion to $7.0 billion [7] - Operating income is nearing $2 billion, with net income close to $3 billion and net margins exceeding 40% [7] - The stock is trading at a Price-to-Earnings Ratio of 23.5x, in line with the S&P 500, but with higher cash flow and revenue multiples [7] Group 4: Historical Context and Volatility - Coinbase's stock has historically been more volatile, plummeting over 90% compared to a 25% drop for the S&P 500, requiring 911 days for full recovery [7] - During risk-off periods, crypto activity diminishes quickly, leading to contraction in valuation multiples and revenue declines [7] - The stock remains highly correlated with Bitcoin, indicating that significant drops in BTC could lead to further declines in Coinbase's stock due to simultaneous decreases in transaction volumes and asset values [7]