Hopes for another interest rate cut by the Federal Reserve at its upcoming policy meeting have sparked a renewed interest in both the stock and cryptocurrency markets. Despite a minor setback on Thursday, Bitcoin’s value has begun to recover after recently hitting a multi-month low of under $85,000. This decline had significant repercussions, dragging down notable crypto-related stocks, particularly Coinbase (COIN) and MicroStrategy (MSTR).
For potential investors, the current price points of these stocks may appear enticing. Coinbase is trading at about 38% below its 52-week high of $444, while MicroStrategy is nearly 60% away from its one-year peak of $457.
Investors are navigating a range of risk factors, particularly those related to Bitcoin. Recent concerns have pivoted around macroeconomic pressures, leveraging liquidations, and declining investor sentiment. Prior to its latest downturn, Bitcoin had surged to over $120,000, buoyed by a bullish trend following its last halving cycle in 2024. This cycle, which occurs every four years, halves the rate at which new Bitcoins are minted, impacting the supply-demand dynamic significantly. Notably, Bitcoin’s price was approximately $63,000 before last year’s halving.
Although Coinbase operates with a level of stability, if the weakness in cryptocurrency markets persists, it could lead to a decline in trading volumes. The company also faces increased competition from platforms like Robinhood Markets (HOOD).
On one hand, MicroStrategy, which holds over $550,000 in Bitcoin, has seen its substantial Bitcoin assets appreciate. However, concerns linger regarding its balance sheet, especially with over $8 billion in debt for Bitcoin purchases against just $54 million in cash. The firm’s profitability may be unpredictable despite substantial earnings potential, influenced mainly by Bitcoin’s market performance.
Looking ahead, Coinbase’s prospects seem relatively positive, with high double-digit sales growth anticipated for fiscal years 2025 and 2026, projected to exceed $8 billion. Over the past two months, earnings estimates for FY25 have also seen an upward trend, now expected to rise by 5% to $8.01 per share. Conversely, the company’s profitability is expected to dip next year alongside elevated expansion costs, with FY26 earnings projected at $5.87.
In the case of MicroStrategy, recent updates to U.S. accounting standards may enable the company to report a striking FY25 earnings per share (EPS) of $78.04, a sharp contrast to previous expectations of a loss of $15.73. Furthermore, FY26 EPS forecasts have soared to $51.60 from earlier predictions of -$0.40, suggesting potential billions in net income, contingent on Bitcoin’s price trends.
Despite these optimistic projections, the broader market has remained cautious amidst ongoing cryptocurrency volatility. MicroStrategy’s annual sales still fall short of $500 million, with modest growth predicted for the next two fiscal years.
Typically, such major EPS revisions might warrant a ‘buy’ rating for MicroStrategy’s stock, but analysts advise caution due to its current context. Although MicroStrategy boasts an appealing forward earnings multiple of 2X, comparing it to Coinbase’s 34X multiple, the revisions for COIN do not present a strong case for a robust recovery just yet.
As it stands, both Coinbase and MicroStrategy maintain a Zacks Rank of #3 (Hold), with analysts suggesting that potentially more lucrative buying opportunities may lie ahead.
