Coinbase (COIN), one of the biggest names around when it comes to buying and selling cryptocurrency, recently made a big new move that could give it a better hold on a still comparatively new market.
Cryptocurrency is still easily one of the most volatile investments around. However, buying in on one of the biggest names to facilitate access to crypto could be a worthwhile play. I'm bullish on Coinbase, thanks to what it's already done in the field and what it may yet do.
The last year for Coinbase has shown us what it can do and what it can sustain. After its IPO last April, the company saw a sharp drop to the $220 - $280 range, where it fluctuated for several months. An ultimately unsustainable rally came in October, followed by a slide that lasted until just a couple of weeks ago.
The latest news should give investors some new hope. The company is in talks to purchase 2TM, the company that in turn owns Brazil's largest cryptocurrency exchange, Mercado Bitcoin. Reports noted that the talks have been going on since last year and that there is a solid chance that the deal could conclude by the end of April.
Wall Street's Take
Turning to Wall Street, Coinbase has a Strong Buy consensus rating. That's based on 13 Buys, two Holds, and one Sell assigned in the past three months. The average Coinbase price target of $316.27 implies 56.3% upside potential.
Analyst price targets range from a low of $200 per share to a high of $500 per share.
Hedge Funds Passing, Dividends Lacking
The hedge fund involvement picture here, meanwhile, is less supportive of Coinbase overall. The TipRanks 13-F Tracker reveals that involvement went up between July and September 2021, but declined between October 2021 and January 2022. That was about the same time Coinbase started its roughly three-month slump that only recently started to break.
Meanwhile, Coinbase's dividend history doesn't serve as much inspiration for potential income investors. Coinbase has no dividend history to speak of as yet.
A South American Push Makes for Big New Potential
Here's the best news about Coinbase's plan to buy 2TM: Mercado Bitcoin has been growing. The reports that noted the deal also pointed out that the company cleared 3.2 million customers in 2021 alone and added 1.1 million during that same year.
Its trading volume, meanwhile, hit $7.1 billion that year. That's a lot of potential new users for Coinbase and just what cryptocurrency in general needs to keep growing.
Moreover, 2TM doesn't just have a connection in Mercado Bitcoin. 2TM also holds Meubank, Bitrust, Blockchain Academy, Portal do Bitcoin, and several others.
If the deal ultimately goes through, Coinbase's expansion plans will grow significantly in one fell swoop. Coinbase's expansion in blockchain infrastructure and customer service systems has also given the company new room to run.
These points come together to underscore one key point: Brazil was experiencing a crypto boom as recently as late January. As such, it's no surprise that Coinbase would take an interest in having a piece of that action itself.
Brazil is also the leader in digital payments in Latin America. One platform, Pix, boasted over 104 million users to its credit. Given that Brazil's population was around 214 million back in January, that's no mean feat.
The growth of interest in digital payments has led to a similar interest in one particular kind of cryptocurrency: stablecoins. Stablecoins are a kind of cryptocurrency tied to an external market reference, usually a local fiat currency. A stablecoin, therefore, has limited growth potential but also limited volatility.
Coinbase is in an excellent position to take advantage of that interest. Buying 2TM gives Coinbase access to a market that may see rapid growth going forward. Coinbase can then integrate that growth into its own operations and use it as fuel accordingly.
Concluding Views
If the purchase of 2TM goes through, then Coinbase has a major new foothold in a market that could be on the rise. Certainly, the risk of a recession may spoil investment somewhat. Cryptocurrency would likely suffer as investors increased liquidity to pay everyday bills. Growing inflation poses similar risks.
However, this likely won't stop investment altogether so much as limit it. Plus, after a recession concludes, revived interest in investment would give Coinbase a new edge.
Coinbase is trading much closer to its lowest targets than its highs. The upside potential is outstanding. It's already demonstrated that it can crack the $350 mark per share. It could go higher still. It's going to need a lot more users to get there, though, and the 2TM purchase may help provide just that.
Coinbase's expansion efforts merit further consideration from investors. Despite declining hedge fund interest, I'm still bullish on this major player in cryptocurrency.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
