Coinbase (NASDAQ:COIN) recently completed its public debut and has garnered a lot of attention from investors. The Coinbase share price soared past the Nasdaq’s reference price of $250 per share and reached as high as nearly $430! Since then, it has fallen back down to around $320. But that’s still 30% higher than expected. So, is this a business I should have in my portfolio?

What does the business do?

Since its inception in 2012, Coinbase has amassed a user base of more than 56 million customers across 30 different countries. These customers range from individual investors to institutional ones such as hedge funds and investment managers.

So how does it work? Coinbase operates a cryptocurrency exchange platform. It allows users to buy and sell over 50 different digital currencies like Bitcoin in a similar fashion to buying and selling shares. And just like a stockbroker, Coinbase takes a small commission on each transaction.

Reasons to be optimistic about the Coinbase share price

Coinbase is not the only cryptocurrency exchange around, and it certainly won’t be the last. But it has managed to distinguish itself with its easy-to-use platform and reputation for quality. As such, it’s become a leader within the space and has been recognised as the best Bitcoin exchange in 2021 by Techradar magazine as well as others.

In terms of more tangible achievements, the firm’s first-quarter results showed some stellar levels of growth. The total number of users increased by 30% since the start of 2021. Total assets on the platform rose to $223bn, giving its an 11.3% market share of the entire cryptocurrency space. Meanwhile, its revenue exploded, reaching $1.8bn in the last three months versus $1.3bn in the whole of 2020. 

Needless to say, that is some impressive levels of growth. But can it be maintained?

Reasons to be cautious about the Coinbase share price

I think it’s highly likely that a lot of this impressive growth has been made possible thanks to the circulating momentum in cryptocurrencies themselves. 

However, these digital assets are known to be quite cyclical in nature. In fact, there have been four major price cycles since 2010 that are no doubt going to continue in the future. This, in turn, could add considerable volatility to Coinbase’s financial performance as well as its share price.

Another concern I have is the longevity of cryptocurrencies in general. Yes, several large companies like Tesla and PayPal have indeed begun adopting these assets to complete payments. However, the US treasury is currently exploring new legislation to regulate these assets, which could significantly impact their popularity and usefulness. Meanwhile, Turkey has recently joined the growing list of nations to outright ban the use of cryptocurrencies to complete payments. And I don’t think it will be the last.

Personally, I believe regulation is inevitable as governments seek to prevent illicit activities. But what form this regulation will take is currently unknown, as is the impact will have on the Coinbase share price.

Final thoughts 

All things considered, I’ll be keeping Coinbase on my watchlist for now. There remains a lot of uncertainty surrounding the company’s ability to continue performing as it is right now during the low point of the cryptocurrency cycle.

Looking at the Coinbase share price, it seems to me that the valuation is being driven predominantly by shareholder expectations, which may not be met. So I won’t be adding the company to my portfolio today.

But there is another growth stock that caught my attention this week…