This crypto stock just got a big nod
It is no surprise that 2022 has been a volatile year for both the capital and crypto markets. The days of meme shares and mooning assets seem so long ago. Since its public debut in April 2021, Coin base (COIN -2.51%) has been one of the most scrutinized stocks on Nasdaq. Keeping up with the company’s development amid growing regulatory concerns over the crypto markets and waning investor enthusiasm has become challenging.
Despite all this turbulence, Coinbase has managed to make some significant progress. In this article, we will discuss how Coinbase has begun to lay the groundwork to become a full-fledged crypto conglomerate and mature beyond just a trading exchange.
Big tech follows Wall Street
Over the summer, Coinbase announced that it had partnered with the asset management firm Black stone. More specifically, the partnership revolves around BlackRock’s proprietary risk management software called Aladdin. At a high level, Aladdin’s software is leveraged by hedge funds and other financial institutions to process analytics across stocks, bonds and foreign currencies as well as derivatives and alternative assets. While that’s an impressive list of asset classes, do you see something missing? Coinbase did it.
According to a press release on Coinbase’s blog, BlackRock selected the exchange to act as an integrator to provide “crypto trading, custody, prime brokerage and reporting capabilities to Aladdin’s institutional customer base who are also customers of Coinbase.”
While this partnership is nascent, it’s probably not a surprise that other major companies, albeit in different industries, took notice. Just last week, the Internet behemoth Alphabet announced a strategic partnership with Coinbase. Let’s explore why this is a huge step forward for Coinbase and the crypto economy.
Image source: Getty Images.
Is this partnership a big deal?
There are a lot of moving pieces in Alphabet’s deal with Coinbase, and both companies are well-positioned to take advantage.
Essentially, Alphabet has decided that it will allow its cloud customers to pay for its services Bitcoin, Etheror Dogecoin should they choose. Coinbase will be the technology that powers these payments via the Coinbase Commerce offering. This is an interesting position for Coinbase because as Alphabet’s cloud platform continues to grow, there is an argument to be made that Coinbase’s infrastructure will drive more transactions. The two biggest variables in question are the pace at which the use of crypto payments is moving and the growing number of crypto tokens supported by Google Cloud.
While this is exciting for Coinbase, it’s also a big win for Alphabet. While Amazon and Microsoft dominate cloud computing, Alphabet’s platform, Google Cloud, is rapidly gaining market share. According to the terms of the partnership, Coinbase “chose Google Cloud as a strategic cloud provider to build advanced exchange and data services. In addition, Coinbase will use Google Cloud’s powerful computing platform to process blockchain data at scale, increasing the global reach of its crypto services by leveraging Google’s premium fiber optic network.”
According to CNBC, Coinbase will move some of its existing applications gone from Amazon’s cloud platform, AWS. This is a big deal for Alphabet. While it’s still early days, Coinbase’s leadership hasn’t let the crypto winter deter its vision. Despite cratering asset prices and lower trading volume, Coinbase’s management has focused relentlessly on the broader use of crypto, particularly with large institutions.
Keep an eye on valuation
Owen Lau is an equity analyst at Oppenheimer. He currently has a Buy rating on the stock and an estimated price target of $107. During a recent interview, he was asked about the implications of this partnership and what it could mean for Coinbase.
Interestingly, although not surprising, Lau did not explicitly say whether this deal would affect Coinbase stock in the short term. Instead, his reasoning is that since the markets are still operating in a crypto winter, investors are best served to proceed with caution.
Coinbase is slated to publish Q3 2022 earnings on November 3. While there may be some near-term volatility leading to earnings, wise investors should wait until after the earnings release to make a decision on the stock. Even though Coinbase is trading well at its highs, it is still a speculative stock to own. It is highly likely that investors will learn more about the company’s progress with BlackRock, Alphabet and any other potential partnerships during the call.
One thing that is highly likely is that crypto is here to stay in one form or another. Its role in the larger economy and financial markets will certainly evolve. However, investors should feel encouraged that the world’s largest financial and technology firms are not only involved in crypto, but are also partnering with Coinbase specifically. Coinbase may be a good stock to own for investors with a long-term market outlook.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet (A shares), Amazon, Coinbase Global, Inc. and Microsoft. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Bitcoin, Coinbase Global, Inc., Ethereum and Microsoft. The Motley Fool has a disclosure policy.
