Stock of the Week: Coinbase



    Andrew Willis: There’s a reason why Coinbase (COIN) was the first major cryptocurrency exchange to list on a U.S. stock exchange. It’s a key onramp for retail traders, with a decent record of regulatory compliance and a non-traditional ecosystem…

    Unlike traditional U.S. exchanges, Coinbase fulfills multiple roles in the trading ecosystem by acting as an exchange, asset custodian, and broker. This means opportunities for multiple revenue streams. But right now, the majority of the company’s income comes from transaction fees…

    That’s a problem because a reliance on fees makes Coinbase inherently reliant on the growth and success of Bitcoin, Ethereum and some other cryptos. Equity analyst Michael Miller explains that speculation on future price appreciation remains a key part of the space’s appeal – which in turn creates further uncertainty about the long-term value and sustainability of current prices.

    Until Coinbase develops those other potential revenue streams, we need to have more confidence in the long-term viability of cryptocurrency as an asset class, because the company’s returns on invested capital could quickly evaporate –and we don’t want the same to happen to investors.

    For Morningstar, I’m Andrew Willis.

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