Coinbase: Institutional Money May Start Pouring In (NASDAQ:COIN)

Thesis Summary

Coinbase (NASDAQ:COIN) is making headlines again, as it has just received a full business license to operate in Singapore. This is a huge move for the company, as Singapore has the capacity to attract a lot of international business, including institutional players.

Hopes of a new bull market are flourishing again as Bitcoin (BTC-USD) breaks above $28,000, and we are also seeing some good moves in altcoins. Looking at where we stand in the Bitcoin cycle, this is the time to accumulate. If I had to guess, though, I think we could see one more low in Bitcoin and Coinbase before a real reversal.

In my last article on Coinbase, I mentioned that the company was well-positioned to benefit from institutional adoption, and this move in Singapore supports that thesis.

Furthermore, I warned investors they might be able to buy the dip at $70. COIN reversed at $69, and now is a good time to pull the trigger.

Back In Business

It’s been a rough year for Crypto and Coinbase. Cryptocurrencies have come under regulatory scrutiny, prices have fallen, and so have Coinbase’s revenues.

But with all the bad news out of the way, it might now be time for the market to price in some good news, and that’s what the market is doing today.

Coinbase has obtained full regulatory approval in Singapore, which opens up the door to significant institutional investments.

Where we see the (full license) also come into play is in helping us to accelerate relationships with stakeholders, particularly those that are regulated, such as banks.

Source: Mr. Hassan Ahmed, director of Coinbase Singapore

As mentioned by the company’s director, this move brings Coinbase one step closer towards getting business from regulated institutions.

Singapore could certainly become a new hub for crypto investment. The country is already very popular with international investors, thanks to its favourable investment landscape.

As we can see, Foreign direct investment in Singapore has been growing at a fast pace, and that may be because Singapore scores so highly in transparency, responsibility, and shareholder power.

This makes Singapore the ideal place for Coinbase to establish a worldwide crypto hub.

The Big Picture

Coinbase’s business and stock price are highly correlated to that of Bitcoin and crypto. Looking at where we currently stand in the “Bitcoin cycle”, this would seem like a great place to add.

Bitcoin has tended to rally ahead of and following its halving cycles. The next halving is set to take place around March 2024. This means we should now be in a good accumulation phase.

Ahead of the 2020 halving, Bitcoin rallied towards $10,000, only to collapse in value just ahead of the halving and then begin its rally towards $60,000.

If this were to happen again, we might see Bitcoin retest lower levels, but I believe the low setback in December should hold.

Technical Outlook

In my last article, I proposed an Elliott Wave count for Coinbase, which has played out quite well so far.

Following a strong rally to over $100, Coinbase has now returned a little over 50%. This is to be expected in an Elliott Wave ii.

COIN has made a strong reversal at the $70 level, and we have enough to consider this retracement to be done.

With that said, we are now battling the 50-day MA. If we fail to break this, then another low could still be in play. There’s a lot of support coming in at $65, which is the 61.8% retracement and where the 200-day MA lies.

In my opinion, at $65, Coinbase would be an absolute gift to investors.

Risks

Despite my positive outlook, Coinbase will face some challenges moving forward. My biggest concern right now is that the company is struggling with profitability.

On adjusted terms, the company was able to turn an EBITDA profit, but this was only after laying off a significant amount of employees and cutting down on costs aggressively.

Current EPS estimates still have Coinbase not turning a profit until 2027.

Though I think these are overly pessimistic, the lack of profitability does raise concerns over the financial health of Coinbase and the possibility that the company will have to raise capital.

Takeaway

The crypto industry has become a challenging one this year, but to me, this means the players left could benefit even more. Coinbase is one of the few crypto exchanges that can actually bring institutional investors into the space, and as this plays out, I expect the company to do very well.