Is COIN A Buy After The 5% Drop?

Shares of cryptocurrency exchange Coinbase (NASDAQ: COIN) fell 5.1% in the morning session after stocks with exposure to the crypto space declined as momentum in the crypto market weakened following a strong rally that began in the weeks leading up to the November 2024 elections.

Coinbase shares fell sharply on Friday morning after a recent rally in stocks linked to the cryptocurrency market lost steam.

Coinbase shares fell 5.1% in premarket trading after a recent rally in stocks linked to the cryptocurrency market lost steam as momentum in the crypto market weakened following a strong rally that began in the weeks leading up to the November 2024 elections. Investors had hoped for more favorable regulation under a new administration. Although the incoming Trump administration's victory was initially viewed positively, the market now appears to be searching for new catalysts to sustain its momentum. Additionally, profit-taking by investors may be contributing to the downturn. Notably, Bitcoin—the largest cryptocurrency by market capitalization—fell by more than 10% after reaching a record high of $106,000 on December 16, 2024.

Coinbase’s shares are extremely volatile and have had 79 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news to be important but not something that would fundamentally change its perception of the business.

The previous big move we wrote about was 12 days ago when the stock gained 6.1% on the news that the major indices soared, with the Nasdaq up 1.4%, while the S&P rose 0.7% after the Bureau of Labor Statistics reported the Consumer Price Index (CPI) for November 2024 which was in-line with expectations. The CPI rose 0.3% from the previous month, while headline inflation rose 2.7% year on year, nearing the Federal Reserve's 2% target but not quite there yet. The market reaction suggests investors interpreted the report as a signal for the Fed to lower rates, reinforcing expectations of a 0.25% cut at the December 2024 meeting.

As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. The result of lower interest rates, all else equal, is higher stock valuations. This is especially true for higher-growth stocks, such as those in the technology sector, where the current value depends more on cash flows many years out in the future.

Coinbase is up 71.3% since the beginning of the year, but at $268.74 per share, it is still trading 21.8% below its 52-week high of $343.62 from December 2024. Investors who bought $1,000 worth of Coinbase’s shares at the IPO in April 2021 would now be looking at an investment worth $818.63.