Is bitcoin gold? Is Dogecoin just a joke and a dog?
Some idea of whether cryptocurrencies are a new asset class or the next bubble to burst will come into play on Thursday when Coinbase reports its first quarterly earnings as a public company.
Nashville-based research firm New Constructs and its CEO David Trainer sees Coinbase (COIN) – Get Report shares potentially falling to $100 or less as the company is unlikely to meet future profit expectations.
“No earnings report, in our opinion, will be strong enough to convince investors the company will exceed the extraordinary expectations for profits already baked into the current price,” Trainer wrote in a research note.
Coinbase is expected to report earnings of $3.07 a share on revenue of $1.8 Billion on Thursday. The crytpo exchange’s shares ended the day Tuesday at $303, up 3.25%.
Coinbase’s earnings will be just another cog in a confusing wheel for crypto novices, where market veterans unfamiliar with how digital currencies like bitcoin, ethereum and dogecoin work remain perplexed about what’s driving prices higher.
Yet for crypto believers and enthusiasts, it’s been affirmation of a new digital way to pay for goods and services, store value and hedge against rising prices.
Bitcoin remains entrenched at near-$60,000; ether, the digital token that is the ethereum network’s solution to issue payment, has surged more than 2,000% since the start of the year and has a market value of more than $500 billion.
Dogecoin, literally a joke but now a household name, has delivered eye-popping 12,000% gains as of the end of April.
For many Wall Street veteran strategists and economists, the cryptomania that has taken over Wall Street and Main Street smells a lot like the tulips that have been blooming this spring – and that brought down the Dutch tulip market in 1637.
For others, including companies and institutions like Tesla (TSLA) – Get Report and Palantir Technologies (PLTR) – Get Report, which on Tuesday said it will accept bitcoin as payment for its services and is looking to add BTC to its balance sheet, it is the beginning of cryptocurrencies and assets coming into their own.
“Over a longer-term time horizon we definitely think this is the beginning phase of what’s going to be the birth of an entirely new asset class that we think will be in the trillions of dollars,” Yassine Elmandjra, crypto analyst at Cathie Wood’s Ark Investment Management, told Bloomberg.
The question is what that asset class ultimately will look like, and more importantly how liquid and safe it will be.
Dogecoin has been the poster child of naysayers who say crypto is hocus pocus. The cryptocurrency now has a market value of around $65 billion and apparently has been used to pay for a lunar satellite launch with Elon Musk’s rocket firm, SpaceX.
Yet few can explain what checks, balances and underlying assets make a Dogecoin worth 50 cents.
The token is testament to the power of memes but “much of the value is speculative and we’re ultimately going to see a washout from these prices,” Elmandjra told Bloomberg.
To be sure, crypto believers point to fiat currency – the U.S. dollar, being the prime example – as just another form of payment that in reality isn’t backed by anything other than government promises. The Gold standard, which used to peg each dollar to a set amount of gold, was dismantled in 1971.
They also point to nuances in each cryptocurrency – bitcoin having a finite set of coins – 21 million – that will ever be produced, and more applications being built on top of the ethereum network, bolstering ether’s value, “which is making investors realize that Ethereum is more than just a concept,” according to Zhenwu Shi, founder and CEO of blockchain infrastructure firm InfStones.
To be sure, naysayers abound, particularly when it comes to companies that make their money by offering trading platforms and services to cryptocurrencies.
At over $300 a piece, New Constructs’ Trainer sees Coinbase shares a simply overvalued, since the company is unlikely to meet future profit expectations.
“At [Coinbase’s] current price … the stock’s valuation implies the company will exceed the combined revenue of Intercontinental Exchange and Nasdaq,” Trainer said the in note. “We do not expect [Coinbase] to report any news from 1Q21 that could justify owning shares at current levels.”
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