My Top Web3 Stock to Buy and Hold in 2023

After a terrible year in 2022, one that saw the overall cryptocurrency market go from over $2.2 trillion in value to roughly $800 billion, investors are probably avoiding the entire asset class like the plague. The so-called “crypto winter” is fully here, so the thought process of waiting for prices to rise again before buying is justified. 

But there is one potentially lucrative investment opportunity for readers who still believe in blockchain technology and cryptocurrencies. I think Coinbase Global (COIN 15.06%) is one of them. It’s my top Web3 stock to buy and hold in 2023. 

Standing out from the crowd 

There’s no doubt the public’s trust of the crypto industry is at an all-time low right now. Last year, we saw prominent firms, like Celsius, FTX, and BlockFi, which were all seemingly thriving not too long ago, all run into liquidity issues and eventually file for bankruptcy. The worst result of these failures was the fact that customer funds were lost. These adverse events shined a light on just how complex, opaque, and risky major players in the industry can be. 

In my opinion, the trials and tribulations of 2022 might be a boon for Coinbase. Coinbase is a publicly traded company in the U.S., and with this, it must abide by onerous rules and regulations, like providing audited financial statements every quarter. FTX, on the other hand, was based in the Bahamas, where laws are much more relaxed. Those authorities seemed to be happy to just have a multibillion-dollar organization there. However, trying to understand FTX’s true financial situation was an impossible task. 

Coinbase now looks like a safe and trusted enterprise in the crypto space. As of Sept. 30, the business had $5 billion of cash and cash equivalents on its balance sheet. And CEO Brian Armstrong pointed out on Twitter how his business actually holds its clients’ assets one-to-one, a fact that can be proven by looking at the financial statements. Plus, as more regulations are inevitably introduced, Coinbase will have a huge lead compared to rivals who took shortcuts in their operations.

No one knows how long the current crypto winter will last. But when it’s over, and asset prices start climbing again, I see no reason why Coinbase won’t attract a massive amount of new users as it quickly gains market share. 

Betting on the growth of crypto 

Coinbase shareholders are all too familiar with the volatility that’s inherent in the business model. That’s because the company generates the bulk of its revenue from unpredictable trading fees. When crypto asset prices are rising, Coinbase thrives. But the opposite is also true, as we’ve seen recently. 

In 2021, Coinbase generated total sales of $7.4 billion, up 573% from 2020. But in the first nine months of 2022, revenue was cut in half from the same period in 2021. These figures track closely with the performance of the crypto market. 

And in the first three quarters of 2022, transaction revenue represented 79% of the overall business. Because a person’s first experience with digital assets is likely to be just investing in them, Coinbase is positioned as a top platform to facilitate this type of activity, with 108 million verified users and 8.5 million monthly transacting users (as of Sept. 30). However, investors certainly want a more stable and diversified business in the years ahead. 

Management understands this, and that’s why they are positioning Coinbase to benefit from crypto’s transition from a speculative tool to something that has greater utility. Obviously, most people still only view crypto as an investment vehicle. But over time, the hope is that real-use cases, whether its non-fungible tokens or decentralized finance protocols, will rise in popularity. 

A key product that Coinbase offers is something called Coinbase Cloud, which is an infrastructure service that allows developers to build innovative applications using Coinbase’s resources. It’s akin to Amazon Web Services, except for the world of cryptocurrencies. The thinking is that Coinbase can become a top foundational service provider to the industry and thus will find ways to monetize this competitive position. 

With the stock down 90% (as of Jan. 6) since going public in April 2021, Coinbase sells for a price-to-sales multiple of 1.5, about the cheapest its shares have ever been. For those who believe in the potential for cryptocurrencies to become a bigger part of our daily lives in the years ahead, it’s hard to see a future where Coinbase doesn’t play a major role in that happening. As a result, it might just warrant a closer look today.