Coinbase Stock Price Risk/Reward Analysis for 2023

Coinbase stock price has had one of the biggest meltdowns in the stock market. The shares plunged to a record low of $32.51, which is a shame since the company was trading at $369 at its peak. It plunged by 87% in 2022, meaning that lagged Bitcoin by far. In this article, I will present a risk/reward analysis for the stock as we enter 2023.

Coinbase mountain of risks

Coinbase stock faces significant risks as we move into 2023. First, there is a risk that cryptocurrency prices will continue their meltdown during the year. Historically, Coinbase share prices performs well when cryptos like Bitcoin and Ether are doing well. It reached its all-time high when Bitcoin surged to a record high. Therefore, the stock will be at risk if the crypto winter extends to 2023.

Second, Coinbase faces significant regulatory risks. After the collapse of FTX, Voyager Digital and Alameda, the SEC and other regulators will want to flex their muscle on the sector to prevent another meltdown. They could start by looking at the biggest exchanges like Coinbase and Binance.

In line with this, we will likely receive a verdict of the ongoing SEC vs Ripple case in 2023. If the judge rules in Ripple’s favor, it could provide relief for Coinbase and other players in the sector. On the other hand, if it loses, the SEC could use the victory to crack down on crypto securities. Such a move could see Coinbase delist most of its offerings, which are viewed as securities.

Coinbase has other risks as well. For one, analysts expect that the company’s earnings for Q4 will disappoint because of the FTX drama. Its subscription business will also start decelerating as the crypto fear and greed index slips. Other risks are on a global recession and high interest rates.

Coinbase stock has some opportunities

Coinbase share price will likely react to several potential rewards. The most important will be a comeback of cryptocurrencies. If this happens, the stock will react in a bullish way. Besides, BTC has had similar meltdowns in the past.

Second, the company could benefit from the collapse of companies like FTX and Celsius since it is viewed favorably than other companies. Unlike companies like Binance, Coinbase is a regulated firm that is publicly traded. As such, it is mandated by law to provide accurate information to investors.

Further, Coinbase has a strong balance sheet with over $6 billion in cash. As such, it will be able to navigate the current winter well.

Coinbase risk/reward verdict

Coinbase faces significant risks, which has made its stock price a bargain. From a risk and reward perspective, I would suggest allocating some money into the stock. Better yet, I would suggest investing in Bitcoin itself instead of the company because of the significant regulatory risks. But because of the overall risks, this cash allocation should form only a small part of your investment portfolio.