Bitcoin prices are tumbling. And so are shares of top cryptocurrency trading firm Coinbase Global.
Coinbase fell 2% Tuesday and is now trading at about $217 — not far from its all-time low and a far cry from its peak price of about $429.50.
It’s been just two months since Coinbase went public via a direct listing of its stock. Needless to say, the timing has been terrible. Coinbase shares are down more than 35% from the closing price on its first day of trading. Bitcoin has suffered a more than 50% drop during that time frame.
While many Coinbase bulls argued the company would be immune from the price volatility of individual cryptos like bitcoin, ethereum and dogecoin, that has clearly turned out to not be the case.
Coinbase is still tied to the fortunes of bitcoin, even if users continue to conduct transactions regardless of whether the prices of cryptos go up or down. Simply put, Coinbase generates less revenue when prices are falling.
“Coinbase derives 90% of its revenue from trading fees that are assessed as a percentage of the transaction,” Chris Kuiper, an analyst with CFRA Research, said in a report this month.
“Even its other revenue sources, such as custody services, are also based on a fee as a percentage of the assets stored and therefore correlated to the price of cryptoassets,” Kulper added.
Of course, all the volatility could create a good opportunity for those brave enough to buy the dips.
“If the future of finance, stores of value and innovative ways of transacting goods and services becomes increasingly tied to the blockchain, we believe that [Coinbase] stands to be a major beneficiary,” Canaccord Genuity analyst Joseph Vafi said in a report last week.
Vafi added that Coinbase is “a kind of ‘super on-ramp’ to everything crypto,” but he conceded that “today that on-ramp is mostly comprised of trading revenue.” Still, he thinks the stock’s big pullback now makes it more attractive for long-term investors.
But Coinbase is not the only crypto-related stock that is pulling a Tom Petty and free falling lately.
Software firm MicroStrategy (MSTR), which owns a big chunk of bitcoin on its corporate balance sheet, plummeted 11% Tuesday following a 10% drop Monday.
Shares of bitcoin miners Riot Blockchain (RIOT) and Marathon Digital Holdings (MARA) as well as Chinese bitcoin mining equipment company Canaan (CAN) have also all plunged this week.
The mining companies tend to be more subject to the daily fluctuations in bitcoin prices.
With that in mind, the co-manager of one crypto related fund said that his firm has sold shares in several mining stocks in able to buy more Coinbase, as well as shares of crypto exchange Voyager Digital (VYGVF) and Mogo (MOGO), a Canadian crypto brokerage.
“Crypto is a new asset so the stocks are going to be volatile. But we increased our exposure to Coinbase since trading volume should increase,” said Michael Venuto, co-portfolio manager of the Amplify Transformational Data Sharing ETF (BLOK). “There is more fear than greed at the moment.”