Thanks to the meteoric rise of cryptocurrencies – particularly Bitcoin’s (BTC-USD) freshly inked all-time high – it was inevitable that exchange and digital wallet service Coinbase (NASDAQ:COIN) would enjoy downwind benefits. However, as its own business entity, Coinbase features its own distinct risk-reward profile. As such, a short-term trading approach may be preferable as investors ride this wave. I lean bullish on COIN stock based on the data.
COIN Stock Is Awesome, but There Are Questions
Undeniably, COIN stock has been a strong asset for bullish speculators. Since the beginning of the year, shares have gained almost 64%. Over the past 52 weeks, they gained nearly 330%, a remarkable ascent. Obviously, the optimism aligns with the underlying cryptocurrency market.
As an accessible platform, Coinbase is effectively the gateway for everyday investors to participate in the crypto narrative. Because of its custodial nature, the company helps to mitigate some of the harsh pain points of the crypto ecosystem, including lost passwords that have locked out people from millions of dollars worth of crypto riches.
Still, virtual currencies suffer from an ongoing legislative question about how to regulate them. Further, crypto exchanges can just implode overnight. Without regulation, there is no protection—and that, of course, frightens prospective crypto investors. So, COIN stock offers an alternative, thanks to its general correlation with the blockchain ecosystem.
Generally, I believe in this narrative. However, I would also be remiss not to point out some concerns about COIN stock.
First and foremost, Coinbase is its own business. And that means that even if cryptos soar to even more blistering heights, if Coinbase incurs problems unique to the organization, then COIN stock is liable to “break” the positive correlation.
Second, legal questions hang over the company, even if the blockchain space enjoyed a major win with the approval of spot Bitcoin ETFs. Therefore, during some cycles, COIN stock might not reliably correlate with the crypto market.
Third, TipRanks currently notes that its Insider Confidence Signal sits at “negative.” Most conspicuously, Coinbase Chairman and CEO Brian Armstrong placed an Informative Sell on COIN stock last month. To be fair, executives sell their shares for a variety of reasons, many of them mundane. Nevertheless, the move may raise some ambiguity over COIN’s future trajectory.
Think Short Term with Coinbase
For those investors who want to participate in COIN stock but are unsure about making a long-term commitment, a short-term approach may be preferable. Two main advantages exist for this line of thinking.
First, traders focus on the immediate sentiment of the market without getting bogged down with wider fundamental issues. Second, the exposure is limited in case of severe volatility: this is a quick-in, quick-out approach rather than a buy-hold-hope approach.
To get the most out of COIN stock for short-term trading, investors may want to consider conditional probability analyses — that is, probabilities calculated on the basis of another event occurring.
There are many ways to approach conditional probabilities, but one that I find helpful with COIN stock is trading based on whether the opening price of a session is above or below the prior session’s closing price. Between October 2 and March 8, there have been 110 sessions, with 52 sessions seeing the opening price in the red.
Among the 52 sessions, 30 saw the closing price end up higher than the opening price. That means roughly 58% of the time, based on recent trading dynamics, traders can look for the buy signal (COIN stock opening lower than the prior day’s price) and potentially have better-than-coin-toss odds of winning.
Even better, during the last five times the “opener-down, closer-up” pattern materialized, COIN stock enjoyed an average same-day return of 2.24%.
Leveraging this information, traders can plug in key assumptions in an options calculator to determine the prospective trade’s viability. As well, they can input hypothetical downside price targets to understand the possible risks and rewards.
Watch the Halving Event
Around April 19, Bitcoin will undergo what’s known as a halving event. To make a long story short, the rewards for mining the cryptocurrency will be halved. Theoretically, this event should negatively impact supply against a hot commodity. That should be bullish on paper.
Nevertheless, there’s also the fear of “buy the rumor, sell the news.” It’s quite possible that after the halving, cryptos could sharply correct. Interestingly, the put/call volume ratio for COIN stock options spiked to 3.19 for derivatives expiring on April 26.
So, word to the wise: the crypto market may continue to undergird an upward bias in COIN stock up until the halving. After the event, there may be some near-term choppiness or outright volatility.
Is COIN Stock a Buy, According to Analysts?
Turning to Wall Street, COIN stock has a Hold consensus rating based on nine Buys, nine Holds, and five Sell ratings. The average COIN stock price target is $182.95, implying 28% downside risk.
The Takeaway: Tricky COIN Stock Offers an Enticing Short-Term Pathway
With cryptocurrencies soaring, COIN stock has ridden the sector’s coattails. The data is clear about that. However, outside fundamentals present some questions about buying and holding Coinbase shares. To mitigate these concerns, traders may consider a short-term approach by exploiting the upward bias in the security.