Originally published May 30th, 2022:
What explains the volatility in cryptocurrency stocks like Coinbase? The answer looks simple, at least recently, and you don’t need to look too far to find it: bitcoin.
Shares in Coinbase, an online marketplace for cryptocurrency trading, have been publicly traded since the company’s direct listing in April 2021, just over a year ago. After initially listing at $250 per share, COIN stock is now down around 70% to $75 per share.
COIN collects a commission on cryptocurrency trades that are executed on its platform: around 1.4% on trades placed by retail investors, and less than 10 bps (0.1%) on the larger trades placed by institutional clients, according to materials from the company. COIN’s revenue model, therefore, is highly dependent on crypto prices.
While Bitcoin represented only 40% of the assets on Coinbase’s platform as of year end 2021, volatility in Bitcoin has been the key driver of movement in Coinbase stock over the last two months. We illustrate this phenomenon in this graph, using closing prices for each trading session over the last two months.
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