Coinbase Co-Founder and CEO Brian Armstrong
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- Coinbase recently announced that it will add $ 500 million in cryptocurrency to its balance sheet and invest in a portfolio of crypto assets.
- Analysts broadly agree that the move signifies Coinbase’s commitment to the cryptocurrency space.
- However, several noted that the balance sheet addition adds an extra layer of risk to Coinbase stock.
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Coin base announced on Thursday that it was Add $ 500 million in cryptocurrency to its balance sheet while at the same time 10% of its quarterly net income is allocated to a portfolio of crypto assets. Insider gathered insights from three Coinbase analysts to help understand the move.
“I like that they put their money where their lips are,” said Mizuho analyst Dan Dolev.
He told Insiders that Coinbase is still heavily fiat money for a company with crypto headquarters for its business. This move changes that, although Dolev would like the exchange to go a step further and charge customer transaction fees in crypto rather than dollars.
“That would signal even more commitment to the cryptocurrency,” said Dolev.
Coinbase CFO Alesia Haas admitted that the majority of Coinbase’s financial transactions – like paying sellers and employees or investing company money – on a Friday are “heavily weighted” in fiat blog entry. But she said Coinbase wants to lead by example by enabling the adoption and use of crypto, and that investment is a step towards that goal.
“We believe that more and more companies will keep crypto assets on their balance sheets in the future,” said Haas. “We hope that by incorporating more crypto assets into our own corporate financial practices, we can take another step towards a more open crypto economy.”
Chris Kuiper, a CFRA stock research analyst, reiterated Dolev’s comment that the announcement shows Coinbase’s commitment to the cryptocurrency industry. Kupier maintained his “Buy” rating on Coinbase after it was announced that he was broadly positive on the stock.
However, adding crypto to Coinbase’s balance sheet adds an additional layer of risk as the company’s share price is already tied to the price and trading activity of Bitcoin, Chris Brendler, senior research analyst at DA Davidson, told Insider. The Coinbase share often moves in parallel with the Bitcoin price.
“That won’t necessarily make or destroy the company,” Brendler told Insider. “But it’s certainly a little scary when you put money into one of those commodities that you’re already pretty closely connected with.”
Part of this risk is offset by a cash balance of $ 4 billion that Coinbase is building in anticipation of a “crypto winter” and possible regulatory action, said Kupier.
Brendler added that since Coinbase is so tied to crypto, Coinbase will need to have more cash than other high-growth non-crypto companies in case there is a “crypto winter” or a prolonged period of low crypto prices and activity.