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Will Coinbase Stock Plummet? Discover How to Turn This Into Your Advantage!

Understanding the Volatility of Coinbase Stock

The value of Coinbase Global Inc (COIN) stock fluctuated dramatically after its direct listing in April 2021. The company’s promising debut month, which saw COIN stock reach an all-time high of $429.54, was followed by significant volatility that left many investors puzzled about the future trajectory of the cryptocurrency exchange. This volatility begs the critical question – is Coinbase stock about to crater and, if so, is there a strategic way to exploit it?

Deciphering Coinbase’s Business Model

Before diving into stock analysis, investors need to comprehend the fundamentals and lucrativeness of Coinbase’s business model. As the most popular cryptocurrency exchange in the U.S., with over 56 million users, Coinbase earns revenue primarily through transaction fees from trades. As the crypto market grows, so does Coinbase’ potential earnings. However, this dependency can also affect its financials inversely given the volatility of the crypto market.

Coinbase’s Financial Health

Despite the stock’s volatility, Coinbase’s financials paint a positive picture. In Q1 2021, the company reported net revenue of $1.8 billion, an impressive increase compared to $190.6 million it earned a year ago. This growth was largely due to the bull market in cryptocurrencies, particularly in Bitcoin and Ethereum. However, cryptocurrencies are notoriously unpredictable, and a bear market could batter profits.

Utilizing Short Selling Strategy

Onto the crux of the matter – Is the Coinbase stock about to crater? While no one can predict with 100% certainty, some investors might consider the option of short selling if they believe a crash is imminent. Short selling involves borrowing stock shares, selling them at current prices, and buying back shares later when the price has decreased. Investors who engage in this strategy benefit from the falling prices, exploiting the market’s downward trend for profit.

However, short selling also carries significant risk, mainly the potential for infinite losses if the stock price rises instead of falls. A successful short sell requires timing the market with precision, a feat often difficult to achieve even for professional traders.

Option Trading as an Alternative

For those who find short selling too risky, an alternative is options trading. This strategy involves buying a contract that gives the owner the right but not the obligation to sell a stock at a fixed price before a specific date. If they predict that Coinbase stock will plummet, they can buy a put option. This permits them to sell the stock at the ‘strike price’, potentially making a profit if the actual stock price falls below that level.

However, as with short selling, options trading is also fraught with risk. Therefore, any investors looking to exploit potential decreases in COIN stock should seek professional financial advice before proceeding.

Regulation Risk

Another factor that investors should consider is regulatory risk. The cryptocurrency exchange is subject to regulations that can influence its stock price. In June 2021, Coinbase received backlash for its new lending product, which led to the valuation drop. Hence, the ever-evolving regulatory environment is a consistent threat to Coinbase’s stock stability.

On the flip side, Coinbase being a regulated entity engenders trust among its users. This trust may support the company’s stock price and encourage new investors, potentially mitigating some of the potential downfall.

By understanding these aspects of Coinbase’s business model, financial health, and risks, including regulatory risk, investors can make informed decisions about the potential for Coinbase stock to crater. Whether exploiting the situation through short selling, options trading, or simply holding on to see how the market evolves, each route comes with its own set of risks and rewards. Regardless, thorough and timely analysis is paramount in navigating the uncertain waters of crypto-based stocks.

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