Coinbase Outage Is Incredibly Bullish

Summary Coinbase experiences a global outage and I see this as a bullish signal. Q1 earnings show record growth in revenues and net income and I expect this to continue. Technical analysis suggests bullish outlook for Coinbase, but competition and market cyclicality pose risks. Thesis Summary Coinbase ( COIN ) is making headlines today as the crypto exchange recently suffered a global outage , which seems to be resolved for the time. Despite what you might think, this outage is incredibly bullish, as it reflects a sudden surge in demand. Coinbase witnessed numerous outages during the last bull cycle too. Coinbase has reported a blowout quarter thanks to increased transaction revenues, but the stock is down from its peak. In fact, from a technical perspective, we have formed a nice base that now projects us much higher. In my last article , I issued a strong buy on COIN, as I argued that institutional money would begin to flow into Bitcoin. Indeed, we have seen Bitcoin's (BTC-USD) price move higher since, and Coinbase has been a major beneficiary, as we will see in this article. I maintain my strong buy rating for COIN, and believe the stock could close to double from here. Q1 Earnings Coinbase had a blowout quarter, beating both revenue and earnings estimates. Income statement (10Q) As we can see from the income statement in the 10Q, Coinbase more than doubled its revenues YoY. At the same time, thanks to gains from crypto assets, the company's total operating expenses actually decreased, leading to over $1 billion in net income, compared to a loss of $78 million in Q1 of 2023. Transaction revenue and subscription revenue (Seeking Alpha) Coinbase is firing on all cylinders. Transaction revenues hit an all-time high in Q1, and this is also true of subscription and service revenues. And, as you might expect, the total trading volume also made a new high. It is undeniable that Coinbase is thriving in this crypto bull market, and Bitcoin isn't even trading at its highest level at the moment. But should the recent outage concern COIN users and/or investors? Outages are bullish From the latest available news , it seems like the outage has been fixed, though some users say withdrawals are still not available. The reason for the outage hasn't been explained yet by Coinbase. Of course, this is not the first outage the company has suffered. Most recently, the company suffered an outage on February 28th . BTC chart (TradingView) I have marked in this Bitcoin chart above the day of the February 28th outage and also the current outage, As we can see, the February outage happened in the midst of a pretty strong rally, which eventually took Bitcoin to $70,000. BTC chart (TradingView) Coinbase also suffered a major outage on May 9th, 2020 , for example, and another one on January 7th, 2021. In both these cases, we actually saw a sell-off on the day, but both actually preceded much larger moves up. While there may be various reasons for an outage, it is pretty common for these things to happen during sudden price movements and surges in activity. In today's case, we have seen a breakout of the Bitcoin bull flag we have formed over the last three months. Bitcoin chart TA (Author's work) My guess is that a lot of people were looking at this as a key level to trade, and this surge in activity could have led to the outage. In any case, it's pretty clear that people are watching Bitcoin, activity in the network is increasing, and the price structure looks quite bullish. Ultimately, this all bodes very well for Coinbase. Technical Analysis Coinbase has a really nice chart in my opinion: COIN TA (Author's work) We have formed a very clean structure since we bottomed back in January. From an Elliott Wave perspective, I see a very clean five-wave structure developing. With the latest move, it is possible that we have bottomed in wave 4. We have formed a bullish divergence in the RSI, and the MACD is looking ready to flip. Obviously, I would be more comfortable adding this closer to the trendline support and the 200-day MA, but I feel like that would be too easy. Investors and traders are getting ready to buy now, especially as Bitcoin seems ready to break out. Risks As the crypto market heats up, more competitors are going to jump into the scene. For example, Coinbase now has to compete with ETFs, which offer another way to gain exposure to Bitcoin. Furthermore, companies like Robinhood ( HOOD ) are also coming into the industry . However, Coinbase is doing well to leverage other sources of revenue this time around, like subscriptions, and it may also be able to profit from institutional adoption. Final Thoughts There is no denying that Coinbase is reaping the benefits of this bull market. Both the fundamentals and technicals are lining up very nicely. I expect revenues to increase further in the next quarter as Bitcoin keeps moving up in price. However, we have to be aware that like Bitcoin, Coinbase may face some cyclicality.