What Happened?
Shares of cryptocurrency exchange Coinbase (NASDAQ:COIN) jumped 6.1% in the morning session after the major indices soared, with the Nasdaq up 1.4%, while the S&P rose 0.7% after the Bureau of Labor Statistics reported the Consumer Price Index (CPI) for November 2024 which was in-line with expectations. The CPI rose 0.3% from the previous month, while headline inflation rose 2.7% year on year, nearing the Federal Reserve's 2% target but not quite there yet. The market reaction suggests investors interpreted the report as a signal for the Fed to lower rates, reinforcing expectations of a 0.25% cut at the December 2024 meeting.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. The result of lower interest rates, all else equal, is higher stock valuations. This is especially true for higher-growth stocks, such as those in the technology sector, where the current value depends more on cash flows many years out in the future.
After the initial pop the shares cooled down to $316.11, up 4.5% from previous close.
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What The Market Is Telling Us
Coinbase’s shares are extremely volatile and have had 80 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was about a month ago when the stock gained 18.9% as stocks linked to the cryptocurrency sector surged after Bitcoin surpassed $80,000, reaching a new all-time high. The improved sentiment echoes growing optimism that the Trump administration will adopt more supportive policies toward the crypto industry. This narrative earned even more credibility after The Republicans regained control of the Senate during the 2024 elections, implying more predictable and stable policies. With supportive policies, there could be increased adoption and integration of cryptocurrencies in mainstream financial systems.
Also, rising asset prices typically improve investor confidence, prompting traders and investors to increase their participation by placing new bets or engaging in more frequent trading. This heightened trading activity translates into higher transaction volumes and more revenues for trading platforms like Coinbase or Robinhood that earn fees on these trades.
Coinbase is up 101% since the beginning of the year, and at $316.11 per share, it is trading close to its 52-week high of $343.62 from December 2024. Investors who bought $1,000 worth of Coinbase’s shares at the IPO in April 2021 would now be looking at an investment worth $962.93.
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