Much of the stock market’s attention has been directed toward cryptocurrency, the hottest and most popular niche in the tech sector today. The idea behind most decisions is that as the price of Bitcoin continues to rise near the all-time high of $100,000 per coin, most, if not all, names associated with cryptocurrencies will rise along with Bitcoin. This is the only drawback that most investors are beginning to realize today.
For better or worse, there is a major rift in the cryptocurrency stock universe today, even after signs from the gold market have given way to a buy signal for Bitcoin and its verticals. Shares MicroStrategy Inc. NASDAQ: MSTR fell by as much as 18.2% in one day, losing more than 25% of the company’s market capitalization.
Beyond MicroStrategy’s fall, there’s another major discrepancy that gives investors another path into a potential cryptocurrency-related recovery, this time as a middleman between the Bitcoin supply and those looking to get a piece of the popularity and activity. Here are the promotions Coinbase Global Inc. NASDAQ: COIN came into play as shares fell more than 7.6% as Bitcoin traded at new all-time highs on the same day.
Why MicroStrategy shares are falling: the problems behind the fall from glory
Microstrategy today
(As of 2:15 pm ET)
- 52 week range
- $43.87
▼
$543.00
- Target price
- $331.13
There’s justifiable benefit to MicroStrategy’s parabolic stock price move, as CEO Michael Saylor has made some smart moves with the company’s capital. Reinvesting any and all free cash flow, primarily into Bitcoin assets, enriched the balance sheet when and if the price of Bitcoin soared, as it is doing today.
However, markets are concerned that Saylor may overlook his hot hand, thinking that whatever happened in the past could continue in the future. The concerns come as MicroStrategy continues to dilute shareholders, this time raising up to $3 billion to buy more Bitcoin.
This is where investors need to weigh the pros and cons of dilution in exchange for gaining leverage to have more Bitcoin on their balance sheet. The stock has proven profitable so far, with shares up 705% over the past 12 months, even after this week’s sharp sell-off.
One problem, however, could be that Saylor is raising all this money to buy Bitcoin at its all-time high, sort of like buying back shares when they are trading at huge prices; At some point, profit will simply no longer make sense. And they don’t make sense to Wall Street analysts as the consensus price target falls short of $331.1 per share.
From where it’s trading today, MicroStrategy shares face a potential downside of 14.6% based on current targets, which may be too much of a risk for investors.
Coinbase Operates in a League of Its Own: Wall Street’s Look at Its Unique Vertical
Coinbase in the world today
(As of 2:15 pm ET)
- 52 week range
- $107.98
▼
$341.75
- P/E ratio
- 52.59
- Target price
- $251.00
Unlike MicroStrategy, which bets on Bitcoin through its balance sheet, Coinbase’s advantage is that it will do well no matter where Bitcoin’s price goes – or at least that may be the basis for Wall Street’s price targets .
Whether Bitcoin is at an all-time high or heading into headwinds and a potential sell-off, traders will be there to take advantage of this volatility. Trading activity will become a source of commissions for the further development of Coinbase. Based on this sentiment, the folks at Needham & Company decided to reiterate their Buy rating on Coinbase.
However, the surprise was the target prices. While they were previously priced at $290 per share, renewed market activity and attention on Bitcoin calls for a valuation closer to $375 per share. To prove these new views correct, Coinbase would need to rise as much as 28% from where it is trading today, not to mention a new 52-week high.
However, another tailwind is bolstering the upside for Coinbase stock, and it comes from its potential new role in the United States economy. News has emerged that Coinbase CEO Brian Armstrong is a potential candidate for the new administration to oversee all things cryptocurrency in the United States.
This designation will provide Coinbase with access to the information and prowess needed to become an influential player in global financial markets if accepted and formalized. Investors can compare this situation to when the government turns to a large investment bank such as Goldman Sachs Group Inc. New York Stock Exchange: GS observe and give advice.
Moreover, BlackRock Inc. New York Stock Exchange: CHLK has already shown interest in Bitcoin, adding it to its asset management program and opening a new exchange-traded fund (ETF). This means that as Bitcoin becomes more widely accepted on Wall Street, rules and oversight will need to be followed, which is where Coinbase comes into play.
That’s a completely different picture than the risk and volatility emanating from MicroStrategy stock right now, and investors can take advantage of that difference before the rest of the market realizes it’s up for grabs.
Before you consider MicroStrategy, you should hear this.
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