Coinbase Inc: A Guide To Investing In The Crypto Exchange

Coinbase is a popular cryptocurrency platform that allows investors to buy, sell, and store their crypto coins. Coinbase went public in 2021, giving investors another way to participate in growth from the crypto industry. The company was founded in 2012 and is headquartered in Wilmington, Delaware. Coinbase makes money based on the assets and trades made on its platform, and it offers various products and services to its users. Here are the steps to invest in Coinbase:

- Understand Coinbase's financial history and assess its financial reports.

- Evaluate Coinbase's potential compared to your investment horizon.

- Select a brokerage firm that fits your needs, such as a discount brokerage or a full-service brokerage.

- Choose an investment strategy and size by determining how Coinbase fits into your overall diversification plans.

- Decide on an order type, such as a market order or a buy limit order.

- Execute the trade by submitting the order.

- Review open orders to ensure nothing is outstanding that could create funding problems.

Understand Coinbase's financial history

Coinbase Global, Inc. (COIN) was founded in 2012 by Brian Armstrong, a former Airbnb engineer, and Fred Ehrsam, a former Goldman Sachs trader. In its early years, the company grew rapidly, reaching one million users by 2014. During this time, Coinbase also secured partnerships with major companies such as Overstock, Dell, Expedia, Dish Network, and Time Inc., allowing these firms to accept bitcoin payments. The company's revenue primarily comes from transaction fees charged to its retail customers, as well as interest on personal loans and maker and taker fees.

In 2015, Coinbase received a significant investment of US$75 million, and in 2016, they expanded their services by adding retail support for Ether. The company continued to grow and, in 2018, announced their intention to add support for ERC-20 tokens and launched Coinbase Ventures, an early-stage venture fund focusing on blockchain and cryptocurrency-related investments.

In 2020, during the COVID-19 pandemic, Coinbase shifted to a fully remote work model and acquired the digital asset trading firm Tagomi for between US$75 and $100 million. In 2021, Coinbase became a public company on the Nasdaq exchange, with shares opening at $250 and closing at $328.28 on its first day of trading.

However, in 2022, the company faced challenges due to the global downturn in cryptocurrencies, leading to layoffs of approximately 18% of its workforce. Despite this, Coinbase continued to expand its partnerships, including a notable collaboration with BlackRock in 2022, allowing their clients to manage their Bitcoin exposure through BlackRock's investment management system.

In early 2023, Coinbase faced regulatory scrutiny from the SEC over its staking products, resulting in an ongoing lawsuit. The company also experienced a net loss of US$1.1 billion in the second quarter of 2022 and was forced to lay off an additional 950 employees in January 2023 due to the potential contagion from the collapse of the FTX exchange. Despite these setbacks, Coinbase remains a leading cryptocurrency exchange platform, serving over 43 million verified users worldwide.

Assess Coinbase's financial reports

Coinbase, a cryptocurrency platform that allows investors to buy, sell, and store their crypto coins, went public in 2021. As an investor, it is important to assess Coinbase's financial reports to make an informed decision about investing in the company. Here are some key considerations:

Financial History and Reports:

Firstly, review Coinbase's financial history by examining its annual 10-K filings and 10-Q quarterly reports. These provide valuable insights into the company's financial health and performance over time. This information is publicly available on the Seeking Alpha website under the SEC filings tab.

Income Statement, Balance Sheet, and Cash Flow:

Coinbase's financial reports include essential documents such as the income statement, balance sheet, and cash flow statement. These can be accessed on the Seeking Alpha website under the Financials tab. The income statement reveals the company's revenue and expenses, while the balance sheet offers a snapshot of its assets, liabilities, and shareholders' equity. The cash flow statement shows how much cash the company is generating and how it is being spent.

Annual Report and Investor Page:

Don't forget to review Coinbase's annual report, which provides a comprehensive overview of the company's financial health and performance. Additionally, the company's Investor page on their website often includes valuable information such as business descriptions, risks, and press releases. These sources can help you understand the company's financial position and any potential risks associated with investing.

Comparison with Other Companies:

As Coinbase is a relatively new public company in a novel industry, consider comparing its financials with those of more established companies to gain perspective. Alternatively, you could compare Coinbase to other companies at a similar early stage of growth in the cryptocurrency industry. This analysis will help you understand how Coinbase fares in the market and if its financial performance aligns with your investment goals.

Investment Horizon and Expected Trend:

Evaluate Coinbase's potential by considering your investment time horizon. Determine if the anticipated growth of Coinbase aligns with your short-term or long-term investment goals. Assess whether the stock is expected to have a bullish or bearish trend, which will impact your decision-making process.

Evaluate Coinbase's potential against your investment horizon

Coinbase's potential for growth is closely tied to the performance of the crypto market and the broader economic climate. Its revenue is primarily derived from trading fees, which are influenced by macro and industry cyclical factors. While Coinbase's stock price has surged in the past, a high inflation and high-interest rate environment can negatively impact its performance.

Coinbase's growth strategy includes expanding its global presence and derivatives trading, with a recent entry into Canada and the launch of its global site and derivatives products expected to boost revenue. The company is also actively developing auxiliary businesses, such as its international and derivative trading business, USDC business, and on-chain business, which are anticipated to contribute significantly to revenue growth within 24 months.

In terms of compliance and regulatory pressures, Coinbase faces increased costs and challenges to its international expansion. The outcome of the SEC lawsuit against the company, accusing it of operating unregistered exchanges, brokers, and clearing agencies, remains uncertain.

Considering these factors, Coinbase's profitability is expected to remain suppressed in the short term (next 12 months). However, the potential for revenue and profit growth is anticipated to manifest within 24 months, driven by the official launch of international platforms and derivative products, the continuous growth of the staking business, and the potential volume recovery of USDC.

Therefore, when evaluating Coinbase's potential against your investment horizon, it is essential to consider the cyclical nature of the crypto market and the broader economic conditions. If your investment horizon is short-term (less than 12 months), the current projections suggest selling Coinbase stock. On the other hand, if your investment horizon is longer-term (24 months or more), buying Coinbase stock may be more favourable as the potential for revenue and profit growth is expected to increase.

Select a brokerage

To buy Coinbase stock, you will need to have an active brokerage account. Brokerage accounts are usually either discount brokerages or full-service brokerages. A discount brokerage will charge minimal fees for stock trades but will offer little advice, so you will need to know what you are doing. A full-service brokerage, on the other hand, will charge higher commissions but will provide an investment advisor who can offer advice.

Coinbase Prime is a full-service prime brokerage platform that provides institutions with everything they need to execute trades and custody assets at scale. It offers advanced smart order routing and a trading platform that makes executing strategies simple. Coinbase Prime can offer full trading functionality or a simple and secure custody-only solution that includes secure storage, staking, and governance.

When selecting a brokerage, it is important to consider your needs and the services offered by the brokerage. Most brokerages have similar capabilities when it comes to research and charts, along with apps and 24/7 customer service.

Choose an investment strategy and size

When investing in Coinbase, it's important to determine how much stock to buy and for how long. This decision should be guided by your overall diversification plans, which may include various asset classes such as stocks, bonds, options, precious metals, and even cryptocurrency.

If you've decided to invest in COIN, the next step is to consider how many shares to purchase and what investment approach to take. This will depend on your holding period and exit strategy. There are different types of investment strategies, each with its own time horizon and approach to buying and selling assets. Here are some common investment strategies to consider:

• Short-term trading: This strategy focuses on taking advantage of small price movements within a short time frame, usually holding assets for a few days to a few weeks. It requires active monitoring and quick decision-making.
• Swing trading: Swing traders typically hold assets for a more extended period, ranging from a few weeks to several months. They aim to capture larger price movements and tend to rely on technical analysis and short-term trends.
• Long-term holding: This strategy involves buying and holding assets for the long term, often for many years. Long-term investors focus on the fundamental strength of the company and its potential for growth over time, rather than short-term price fluctuations.

Once you've determined your investment strategy, you can decide on the size of your investment. This will depend on your risk tolerance, financial situation, and investment goals. Consider how much capital you are comfortable committing to this investment and ensure that it aligns with your overall portfolio allocation.

Remember, investing in the stock market carries inherent risks, and it's essential to do your research and carefully evaluate your investment decisions before committing your capital.

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