Crypto Trading Surge Boosts Coinbase Stock

Investors looking for a more conservative way to invest in cryptocurrencies should consider taking a stake in an exchange.

Executives at Coinbase (COIN) announced on Tuesday that second-quarter revenues surged to $2.23 billion. Profits were $1.6 billion, up a mere 4,900% versus a year ago. Cash on hand is now $4.4 billion.

It was a blowout quarter. Longer-term investors should consider buying dips.

That assessment should be not controversial. Coinbase is minting cash flow. It is an extremely profitable business with plenty of tailwinds. If it was in another sector shares would fetch a much higher valuation. The volatility of cryptocurrencies, and potential regulation is weighing on Coinbase shares.

Longer-term investors should ignore both.

Coinbase isn’t really about crypto price volatility. It is about transactions. Sure, there is some correlation with price and trading volume. However, prices are likely to smooth out as bitcoin is mainstreamed. Ironically, regulation could speed up the process.

Institutional accounts want to buy bitcoin.

Professionals recognize bitcoin is decentralized, scarce and blockchain, its digital ledger system, can’t be hacked. This is the direct opposite of fiat currencies like the U.S. dollar. The Federal Reserve can digitally print greenbacks out of thin air. The supply of figurative ink is unlimited.

A letter to shareholders showed institutional trade volume at Coinbase during Q2 rose to $317 billion, up 47% compared to Q1. Trade volume at the institutional level a year ago was only $17 billion. Total trade volume across both retail and professional platforms was $462 billion, up 38% sequentially.

And that business is insanely profitable. Coinbase is a digital exchange. It gets a cut out of every transaction with margins in excess of 50%. Overhead is minimal and likely to stay that way.

It is the perfect business to profit from the growth of professional crypto trading.

At $269 the shares look like a steal.