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Cryptocurrency, especially Bitcoin (BTC-USD) just hit an all-time high – exchange and digital wallet service Coinbase (Nasdaq:coin) You will enjoy the advantages of being downwind. However, as a unique entity, Coinbase has its own distinct risk and reward profile. Therefore, a short-term trading approach may be preferable for investors to ride this wave. Based on the data, I have a bullish view on COIN stock.
COIN stock is great, but there are questions.
Without a doubt, COIN stock has become a powerful asset for bullish speculators. The stock has increased about 64% since the beginning of the year. Over the past 52 weeks, they’ve climbed nearly 330% of his, an impressive rally. Clearly, that optimism is in line with the underlying crypto market.
As an easily accessible platform, Coinbase effectively becomes the gateway for everyday investors to participate in the crypto story. The company’s custodial nature helps alleviate some of the crypto ecosystem’s toughest pain points, such as lost passwords that lock people out of millions of dollars’ worth of crypto wealth.
Still, cryptocurrencies are plagued by ongoing legislative questions about how to regulate them. Additionally, cryptocurrency exchanges can collapse overnight. Without regulation, there is no protection. And of course, that scares prospective crypto investors. Therefore, COIN stock offers an alternative thanks to its general correlation with the blockchain ecosystem.
In general, I believe this theory. However, it would be remiss not to point out some concerns regarding COIN stock.
First and foremost, Coinbase is its own business. And that means that even if the cryptocurrency soars to even more ferocious heights, COIN stock could “break” its positive correlation if Coinbase has institutional problems.
Second, even if the blockchain space scores a big victory with the approval of the Spot Bitcoin ETF, legal issues continue to haunt the company. Therefore, depending on the cycle, COIN stock may not reliably correlate with the crypto market.
Third, TipRanks notes that the insider confidence signal is currently ‘negative’. Most notably, Coinbase Chairman and CEO Brian Armstrong placed a profitable sell on COIN stock last month. To be fair, management sells stock for a variety of reasons, many of which are routine. Nevertheless, this move may cause some ambiguity regarding COIN’s future trajectory.
Think short term with Coinbase
For investors who want to participate in COIN stock but aren’t comfortable making a long-term commitment, a short-term approach may be preferable. He sees two main advantages in this way of thinking.
First, traders focus on the near-term sentiment of the market without getting caught up in broader fundamental issues. Second, exposure is limited when volatility is high. This is a quick-in, quick-out approach rather than a buy-and-hold approach.
To get the most out of COIN stock in short-term trading, investors are advised to consider conditional probability analysis, i.e. probabilities that are calculated based on different events occurring.
There are many ways to approach conditional probabilities, but one that I find useful with COIN stock is to trade based on whether the opening price of a session is higher or lower than the closing price of the previous session. There were 110 sessions between October 2nd and March 8th, of which 52 sessions started in the red.
Out of 52 sessions, 30 sessions had closing prices higher than opening prices. This means that, based on recent trading trends, about 58% of the time, a trader can look for a buy signal (the opening price of COIN stock is lower than the previous day’s price) and have a better chance of winning than a coin toss. It means something.
Even better, the last five “opener down, closer up” patterns have materialized, with COIN stock delivering an average same-day return of 2.24%.
Armed with this information, traders can incorporate key assumptions into option calculators to determine the feasibility of future trades. Similarly, you can enter a possible downside target price to understand the possible risks and rewards.
See halving event
Around April 19th, Bitcoin will reach its so-called halving. Simply put, the reward for mining cryptocurrencies will be halved. In theory, this event should have a negative impact on supply for popular items. On paper, it should be bullish.
Nevertheless, there is also a fear of “buying rumors and selling news.” There is a good chance that cryptocurrencies will undergo a sharp correction after the halving. Interestingly, for derivatives expiring on April 26th, the put/call volume ratio for COIN stock options jumped to 3.19.
So, word to the wise, the crypto market is likely to continue supporting the upward bias in COIN stock until the halving. After an event, short-term instability or outright volatility may occur.
Is COIN stock a buy, according to analysts?
Turning to Wall Street, COIN stock has a Hold consensus rating based on 9 Buy ratings, 9 Hold ratings, and 5 Sell ratings. COIN’s average price target is $182.95, implying a 28% downside risk.
Bottom line: Tricky COIN stock offers an attractive short-term path
COIN stock rode the sector’s tailwind as cryptocurrencies soared. The data is clear about that. However, the external fundamentals raise some questions about buying and holding Coinbase stock. To alleviate these concerns, traders may consider a short-term approach that leverages the security’s upward bias.
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