Warning: Coinbase Stock Could Fall Much, Much Lower

Stocks to sell

It might be tempting to back up the truck and buy Coinbase (NASDAQ:COIN) stock because you heard about the approval of spot Bitcoin (BTC-USD) exchange-traded funds. However, I’m offering an unpopular opinion today. COIN stock could quickly retrace much of its rally from last year’s fourth quarter, so this is no time to make any hasty trades.

Just as a reminder, Coinbase stock zoomed from $70 to $185 in late 2023. After such a parabolic run-up, there’s a big air pocket below and even long-term investors need to be careful. After all, timing your trades is important, and buying a stock soon after a hype phase can be bad for your financial health.

The Big Warning for COIN Stock Still Applies

I hate to say, “I told you so.” However, I tried to warn prospective investors that COIN stock would have a “buy the rumor, sell the news” moment after the approval of spot Bitcoin ETFs.

I can’t take all the credit for this warning. Mizuho Securities analyst Dan Dolev should get some credit, as well. He forewarned, “With the hype around Bitcoin ETFs likely to reach a climax in the coming weeks, COIN bulls could experience a rough awakening when they realize how minimal the revenue impact is.”

In a similar vein, JPMorgan Chase strategists said that they were “cautious” on cryptocurrency prior to the Security and Exchange Commission’s approval of spot Bitcoin ETFs. Granted, they weren’t necessarily referring to Coinbase stock. Still, the JPMorgan Chase strategists saw a high chance of “buy the rumor/sell the fact” once the SEC approved one or more Bitcoin ETFs.

And, lo and behold, COIN stock dropped in a “sell the news/fact” event. I’m certainly not taking any victory laps here, as I like Coinbase’s growth prospects for the very long term.

Yet, that’s a growth vision for Coinbase in five or 10 years. First, the price chasers and bandwagon jumpers still need to finish their panic-selling. So, if timing matters at all to you, then let the “sell the news/fact” event play out for a while.

Coinbase Isn’t Out of the Woods Yet

Let’s be 100% honest right now. SEC Chairman Gary Gensler isn’t the biggest fan of Bitcoin, Coinbase or any other blockchain-related entity. Indeed, he’s basically been on the warpath against crypto-related assets for at least a couple of years.

Gensler didn’t want to approve any spot Bitcoin ETFs. A federal appeals court practically forced the SEC to give consideration to the applications for these ETFs. I’m not a mind reader, but surely, Gensler would like to continue cracking down on cryptocurrency-associated U.S. businesses.

Actually, there’s no need to be a mind reader. Just read what Gensler said, and read between the lines:

“While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse bitcoin. Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto.”

Moreover, Gensler characterized Bitcoin as “primarily a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing.” That’s a scathing indictment of Bitcoin, and there’s little doubt that Gensler harbors deep distrust of Coinbase and other crypto-related companies.

Therefore, don’t assume that Coinbase is “out of the woods” from a regulatory standpoint. The SEC is a powerful government entity, and don’t be surprised if Gensler finds ways to make life difficult for Coinbase this year.

How Low Could Coinbase Stock Go? Really Low.

Yes, the SEC reluctantly approved multiple spot Bitcoin ETFs. That’s a victory, but now’s not the time to take any victory laps. Stock traders must always remain alert to danger, especially after a stock just went parabolic.

In Coinbase’s case, there’s danger looming because Gensler might retaliate against cryptocurrency-related businesses. Furthermore, it’s difficult to determine how much COIN stock will retrace last year’s rally.

Not to scare anybody, but the “sell the news/fact” share-price decline may persist for a while. Hence, if you want to time your investments judiciously, today isn’t a good day to buy Coinbase stock.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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