'Putting their money where their mouth is': Here's what 3 analysts have to say about Coinbase's decision to add $500 million of crypto to its balance sheet
By: Business Insider
August 21, 2021 at 08:28 AM EDT
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Coinbase announced on Thursday that it would add $500 million of cryptocurrency to its balance sheet, while also allocating 10% of its quarterly net income to a portfolio of crypto assets. Insider gathered insights from three Coinbase analysts to understand the move.
"I like that they put their money where their mouth is," said Mizuho analyst Dan Dolev.
He told Insider that for a company with crypto central to its business, Coinbase still operates heavily in fiat money. This move slightly changes that, although Dolev would like to see the exchange go a step further, and charge customer transaction fees in crypto, not dollars.
"That would signal even more commitment" to cryptocurrency, Dolev said.
Coinbase CFO Alesia Haas admitted that the majority of Coinbase's corporate financial transactions — like paying vendors and employees, or investing corporate cash — are "heavily weighted" in fiat in a Friday blog post. But she said Coinbase wants to lead by example by enabling crypto adoption and utility, and this investment is a move towards that goal.
"We believe that in the future, more and more companies will hold crypto assets on their balance sheet," said Haas. "We hope by incorporating more crypto assets into our own corporate financial practices, we can take another step towards building a more open cryptoeconomy."
Chris Kuiper, a CFRA equity research analyst, echoed Dolev's comment that the announcement demonstrates Coinbase's commitment to the cryptocurrency industry. Kupier maintained his "buy" rating on Coinbase following the announcement that he said was largely positive for the stock.
However, the addition of crypto to Coinbase's balance sheet adds an extra layer of risk, as the company's stock price is already tied to bitcoin's price and trading activity levels, Chris Brendler, D.A. Davidson senior research analyst told Insider. Coinbase stock often moves in tandem with bitcoin's price.
"It's not necessarily going to make or break the company," Brendler told Insider. "But it certainly is a little bit scary when you're putting cash in one of the raw materials that you're already tied pretty closely to."
Offsetting some of that risk is a $4 billion cash stockpile that Coinbase has said it is building in anticipation of a "crypto winter" as well as a possible regulatory crackdown, Kupier noted.
Brendler added that because Coinbase is so tied to crypto, it needs to have a bigger cash balance than other high- growth, non-crypto companies, in case there is a "crypto winter" or sustained period of low crypto prices and low activity.