Coinbase (NASDAQ:COIN) shares are now down nearly 90 percent relative to the $342 price per share at which the stock commenced trading back in April 2021. Some would call this dramatic fall from grace justified, given a rising interest rate environment coupled with a seemingly endless crypto winter. However, now that the dreaded Cramer curse is working its magic and the bond market is pricing in a lot more pain ahead, the stock’s bulls remain stuck in the bear market purgatory.
— unusual_whales (@unusual_whales) November 22, 2022 CNBC’s Jim Cramer tweeted back in April 2021 that he liked the Coinbase stock all the way “to $475.” It was only in September 2022 that Cramer terminated his recommendation to buy the stock. Nonetheless, as we’ve detailed ad nauseum in some of our previous posts, the dreaded Cramer curse will continue to hold sway over Coinbase shares until the CNBC host turns bearish on the stock. For that is how a contraindicator works. And, there is hardly a better countercyclical indicator than the recommendations of the eponymous CNBC host, judging by the continuing outperformance of the i1 Inverse Cramer index, which is up around 28 percent so far this year. Coinbase is barely growing these days. Consider the fact that between Q1 and Q3 2022, the company managed to increase its user base by 10 million. During the same period last year, the company had managed to increase its user base by 20 million. Moreover, the collapse of the FTX exchange has now spurred a broad-based migration of crypto assets from exchanges to self-custody cold wallets. This is likely to hurt as Coinbase is predominantly dependent on trading volume for the bulk of its revenue. Given these industry dynamics, some would argue that a 90 percent drop from all-time highs relegates Coinbase shares to the bargain territory. However, the bond market is currently pricing in further pain. Coinbase bonds that mature in 2028 and carry a coupon of 3.375 percent are currently trading at just 52 cents on the dollar, entailing a yield of 17.11 percent. For comparison, the earnings yield of Coinbase currently computes at 10.87 percent, based on a 2028 forward P/E ratio of 9.2x as estimated by Finbox. If we assume that the current yield on 2028 bonds is, in fact, a correct estimation of risk (can be interpreted as the earnings yield being demanded by the credit market) around Coinbase shares, the implied forward P/E ratio then computes at 5.84x. This corresponds to a further downside potential of 36 percent. Meanwhile, Cathie Wood, that hallmark of post-COVID market excesses, is munching on Coinbase shares at these depressed levels. In light of the dismal performance of ARK Invest this year, Cathie Wood’s endorsement is not exactly a feather in Coinbase’s proverbial cap.
