Are Coinbase (NASDAQ:COIN) shares worth a look?

If you don’t want to buy cryptocurrencies directly, is this the way to get exposure to a hot asset? One fundie has offered his thoughts.

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A crypto coin is inserted into a piggy bank, indicating the share price rise of bitcoin and other crypto currencies

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Cryptocurrency is hot at the moment, so exchange operator Coinbase Global Inc (NASDAQ: COIN) has demanded much attention since its direct listing last month.

But its US$50 billion float valuation had many scratching their heads as to whether it’s starting too high.

Investors were asking this very question on Coinbase’s first day on the NASDAQ on 15 April, with the price going up and down wildly.

So with currencies like Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETC) still all the rage, is it worth dabbling in Coinbase?

Frazis Capital portfolio manager Michael Frazis, in a video update to clients, said his team “really likes” the stock.

“It’s not trading as expensively as you think… It would be less than 20 times [enterprise value to sales ratio]. I think it was 17 times sales.”

In fact, the stock closed Wednesday morning at US$280.66, dropping 4.61%. 

That’s only 12% above the listing reference price, and after it had been up as high as US$429.54 during its first week in the market.

Institutional investors need a trusted cryptocurrency platform 

According to Frazis, cryptocurrency “is heading mainstream” and “every professional investor is thinking about it”.

This is where Coinbase comes in, as the “most trusted counterparty” in a wild unregulated emerging market.

“If you have other people’s money, you want to make sure your custody is rock-solid. And I don’t think any of the other exchanges other than Coinbase really offer that,” he said.

“You want to go to the best… Being known as the best custodian, being insured, and being properly regulated… puts Coinbase in a really strong position for all those institutional flows.”

The business model is lucrative, according to Frazis.

“Like a brokerage, they charge so much – and it’s an extremely profitable business.”

“They benefit from flows and volumes, and they certainly benefit from [cryptocurrency] price increase as well, because it increases the volumes.”

Don’t go all-in on Coinbase though

While the business model and share price look attractive, Frazis reckons anyone considering investing should do so in small increments with a long-term horizon.

This is because the business had its big ramp-up in valuation in the 12 to 24 months before listing.

“That was the big move, so that’s not going to happen again,” he said.

“If Coinbase trades sideways or down for a year, it could wind up for another explosive movement. But I don’t think you’ll get a quick buck there – but it’s a very good long-term investment.”

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Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Bitcoin. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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