Coinbase Stock Surges as Cryptos & Stocks Rally after Inflation Data

Coinbase (NYSE: COIN) stock surged over 10% yesterday amid a broad-based rally in risk assets including stocks and cryptos. The October CPI was lower than what analysts were expecting which led to a risk-on sentiment in the market.

US inflation rose at an annualized pace of 7.7% in October, which is a multi-month low and was lower than the 7.9% that analysts were expecting. On a monthly basis, inflation increased by 0.4% while economists were expecting prices to rise 0.5% over the period.

US inflation data was better than expected

High inflation and aggressive rate hikes by the Fed have spooked markets this year. After the softer-than-expected October CPI reading, markets took a sigh of relief amid expectations that the Fed would now take a breather.

The US central bank has raised by 3.75% so far in 2022 which took a toll on stocks. Cryptos have also plummeted this year, and so has Coinbase stock, which has plunged almost 80% this year.

Coinbase reported a loss in the third quarter

In Q3 2022, Coinbase’s revenues plummeted over 50% to $590 million and missed analysts’ estimates of $654 million. Its per-share loss of $2.43 was also wider than the $2.40 that analysts were expecting.

Coinbase has laid off employees and is looking at several other cost-cut measures amid the prolonged crypto winter. During the Q3 earnings call, it said, “We were pleased to see these actions bear fruit in Q3, as total operating expenses declined sequentially.”

Coinbase does not have much exposure to FTX

Coinbase has clarified that it does not has much exposure to FTX. In its release, Coinbase said, “Regardless of whether the Binance/FTX transaction completes, we have very little exposure to FTX and we have no exposure to its token, FTT.”

It added, “Currently we have $15 million worth of deposits on FTX to facilitate business operations and client trades. We have no exposure to Alameda Research, and we have no loans to FTX.”

Coinbase has a strong balance sheet

It also added why it’s “different” from other crypto exchanges. Coinbase emphasized that there can’t be a “run on the bank” at Coinbase as it holds customer assets 1:1. It added, “Any institutional lending activity at Coinbase is at the discretion of the customer and backed by collateral. We have no gating for client loan recalls or withdrawals.”

Coinbase also pointed to its strong balance sheet. Notably, the company holds over $5 billion in cash and cash equivalents. Coinbase added that it has a strong risk management team. It said, “We’ve also invested in risk management capabilities from the very beginning, with the understanding that effectively managing liquidity, credit and counterparty risk is critical to the financial health of TradFi and crypto companies alike.”

Cathie Wood loads up on COIN stock

Cathie Wood of ARK Invest has snapped up more shares of Coinbase after the stock plunged following the FTX controversy. Wood is known to back up the companies that she likes. Along with COIN, she had added more Tesla and Roblox shares after the recently crashed.

The ongoing drama over Elon Musk’s Twitter acquisition has taken a toll on Tesla stock. Dan Ives of Wedbush Securities, who is among the most notable Tesla bulls, also lowered his target price and removed the stock from his top ideas list.

While Tesla stock has sagged this year, Wood expects it to run much higher over the next couple of years. During the Q3 2022 earnings call, Musk said that he expects Tesla’s market cap to rise to over $4.5 trillion.

Wood is also bullish on Tesla stock

He said, “I see a potential path for Tesla to be worth more than Apple and Saudi Aramco combined. That doesn’t mean it will happen or that it will be easy, in fact it will be very difficult, require a lot of work, very creative new products, expansion and always good luck. But for the first time I’m seeing, I see a way for Tesla to be, let’s say roughly twice the value of Saudi Aramco.”

Oppenheimer expects Coinbase stock to run higher

Coming back to Coinbase, Wall Street analysts are quite mixed on the stock. While Oppenheimer analyst Owen Lau lowered COIN’s target price from $107 to $89, he maintained his overweight rating. He attributed the price cut to the challenges facing the crypto industry.

He said, “The crypto industry has been going through a calamitous hurricane from the fallout of FTX.” Lau added, “It has turned from a Bear Stearns moment when Binance signed a non-binding LOI, to a Lehman Brothers moment when Binance walked away from the deal one day after.”

According to Lau, “Indeed, we need more crypto companies using COIN’s compliant and transparent model. However, a step back of crypto adoption, sustained low crypto prices, enhanced regulatory scrutiny, and contagion related to FTX collapse are likely to follow. But, longer term, the industry will learn the lesson and move forward.”

Crypto regulations

Countries globally are looking to regulate cryptos and earlier this year US President Joe Biden issued a White Paper on the same. Commenting on the evolving regulatory environment, Coinbase said during the Q3 earnings call, “However, this legislation is not yet in place, and we are concerned that the regulation by enforcement practices of U.S. regulators create an incentive for crypto developers and issuers to leave the US crypto industry.”

All said, better regulatory oversight of the crypto industry could be a win-win situation for all market participants.