Investors in Coinbase Global should view Bitcoin and other cryptocurrencies as cyclical, with this year likely marking the trough and a new peak emerging in 2025, according to one COIN stock analyst.
MoffettNathanson analyst Lisa Ellis on Tuesday maintained a buy rating on Coinbase stock. But Ellis lowered her price target on shares to 200 from 600.
COIN stock fell 7.2% to close at 61.36 on the stock market today. Shares have retreated some 76% in 2022.
"The crypto cycles appear to be exaggerated versions of the so-called 'hype cycles' that typically accompany technology innovations," Ellis told IBD in an email. "The most recent cycle – the boom that started in 2020 and bust that has happened over the past months was exacerbated by the pandemic and stimulus funding, which injected a lot of spare time and money into the system."
Bitcoin Boom And Bust
She added: "The key takeaways from prior cycles are that overall crypto asset values keep growing through cycles (from peak to peak) at 30% to 40% compound annual growth rates. Meanwhile, the 'troughs' are getting less severe, likely because of institutional money that stays in the market."
Coinbase is the largest U.S. cryptocurrency exchange. Also, Coinbase charges fees of several percentage points to deposit funds and trade.
Coinbase lists about 50 cryptocurrencies for trading, led by Bitcoin and Ethereum. The price of Bitcoin edged down a fraction to near $29,075 on Tuesday. Bitcoin is down about 57% from its all-time high in November last year.
Meanwhile, Ellis lowered her revenue forecast for COIN stock in 2022, 2023, and 2024 by 47%, 63% and 22%, respectively.
COIN Stock: Crypto Winter To End In 2024?
"We're assuming the next crypto cycle extends for four years, from 2021 to 2025," Ellis said in a recent note to clients. "We're assuming that the shape of the cycle largely mirrors the most recent cycle (2017 to 2021)."
Ellis added: "We expect that the crypto winter to last through 2023, and for the crypto market to re-emerge from the crypto winter in 2024 through a sharp reacceleration."
She expects Bitcoin and others to endure because some traditional financial institutions have greenlighted cryptocurrency projects. Some invested directly in crypto, she added, and both initiatives are likely to continue.
Ellis noted that Coinbase had $6.1 billion in cash at the end of the first quarter. Coinbase stock went public in June 2021.
Coinbase Revenue To Jump In 2025?
"Even for investors that are believers in the long-term potential of cryptocurrency technology, stomaching the level of volatility and uncertainty in Coinbase's financial performance can be difficult," said Ellis.
However, she views crypto as a long-term play.
"We anticipate that 2025 will be the peak year of the current cryptocurrency cycle and, as a result, Coinbase will generate $31.7 billion in total revenue during that year," Ellis said. That would be four times its 2021 revenue of $7.8 billion, she noted.
If you're new to IBD, consider taking a look at its stock trading system and CAN SLIM basics. Recognizing chart patterns for Bitcoin companies like COIN stock is one key to the investment guidelines.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
