Coinbase (COIN) Faces Major Questions Amid Fed Policy and the Crypto Rout

Crypto darling Coinbase faces two existential threats; Federal Reserve chair Jerome Powell’s tersely delivered hawkish rate policy unveiled last week is anathema to growth investors, and the company’s top line growth depends on cryptocurrency performance.

At last week’s annual Fed Jackson Hole Economic Conference, Powell reaffirmed the central bank’s commitment to lower decade’s high inflation with high interest rates for an extended period. Still, he recognized the difficult balance he must strike.

“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” acknowledged Powell, according to the official transcript of his speech. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

Rising interest rates make growth assets like Coinbase shares less appealing than fixed income or dividend paying shares. Digital assets don’t pay dividends, and their growth depends on a single asset’s performance.

“Many cryptocurrencies have exhibited the classic hallmarks of bubbles, including new paradigm justifications, broadening retail enthusiasm and extrapolative price expectations reliant on finding the greater fool,” stated Bank of England Gov. Mark Carney, according to a March 2018 article by Reuters.

Furthermore, charting Coinbase’s revenue history against the average market capitalization of all cryptos at or near the end of each quarter generates a roughly 84% correlation coefficient, enough to show a direct relationship.

In 2021’s fourth quarter, Coinbase’s revenue hit nearly $2.5 billion, and the average crypto market cap hit $2.37 trillion. By the second quarter of this year, Coinbase sales fell to $808 million, and the average crypto market cap shrank to about $947 billion.

Traders are bearish.

Fintel’s put/call ratio reflected a bull/bear balance through February. Since the spring, more traders have been selling puts. The company sports a 1.01 put/call open interest ratio, a bearish indicator adding pressure to COIN stock.

Coinbase (US:COIN) shares rose one percent Monday, outperforming the broader market in a rare showing. The shares fell in the five previous sessions and lost 73% this year.

This article originally appeared on Fintel