While Coinbase Global (COIN) may have started the year with great promise, the cryptocurrency exchange operator couldn’t overcome the macroeconomic conditions sinking sentiment for tech and digital stock assets. The Nasdaq index was down 8% last week, and further widespread declines are expected in advance of this week’s “Liberation Day” on Wednesday.
As such, COIN stock had nowhere to go but down — and in doing so, its price action is about to form the dreaded death cross pattern on its daily chart. Counterintuitively, this represents a timely short-term buying opportunity, which is why I’m turning bullish on COIN stock.
Setting the Framework for COIN Stock
Before diving into the optimistic narrative of COIN stock, it’s important to note that major cryptos are highly unpredictable at the best of times, and now even more so given the uncertainty injected by Donald Trump’s administration.
However, when it comes to COIN stock, a relatively rare technical signal is forming on its price chart. While the Death Cross technical pattern typically implies a bearish signal, I believe in Coinbase’s case, the signal can be interpreted counterintuitively.
On paper, the death cross is a mathematical phenomenon describing a condition where a shorter-running moving average slips beneath a longer-running one. Typically, we’re talking about the 50-day moving average dipping below the 200 DMA. This phenomenon symbolizes the possible beginning of a serious downturn or, in the worst-case scenario, an outright bear market.
Investors and analysts—irrespective of their belief in technical analysis—take note of the death cross for one simple reason: sustained negativity must occur for the death cross to materialize. So, when it flashes, it warrants investigation as to why. Granted, the opinion cycle will have lots to say about Coinbase. From my perspective, the company’s financials are tied to the speculative health of the underlying crypto market. When circumstances are buoyant for the blockchain, Coinbase sees stratospheric sales. If not, growth diminishes.
On a fundamental level, it’s risky to bet on COIN stock now. Simply put, outside circumstances are not favorable. However, there is a technical dynamic to consider; people speculate when deflated securities have a chance of bouncing back. This front-running behavior is what makes the death cross significant.
Playing the Psychological Game Behind Coinbase
A deep dive into the key fundamentals would be necessary if one were looking to invest in COIN stock for the long haul. However, in COIN’s case, the Death Cross pattern creates a near-term bullish opportunity. COIN’s 50 DMA clocks in at $239.50, while the 200 DMA sits at $232.25. That’s a gap of just over 3%. Moreover, the signal occurs when COIN stock trades at a long-term support line around the $170 level. Psychologically and technically, traders will be tempted to bite on the apple.
Even better, history suggests that going contrarian on the death cross would be a good move. Between January 2022 and September 2024, there have been three death crosses. In each case, COIN stock found itself up one month after the signal flashed. Further, the average return stands at almost 37%.
Three incidences is a small sample size, so there’s no significant reassurance that the fourth time will result in an upswing. Death crosses are rare, so extensive sampling sizes will not be forthcoming. Keep in mind that when the death cross flashes, it’s possible that the target security has already priced in the causal negativity. That’s why the signal offers contrarian value for aggressive traders.
Options Strategy Can Take Advantage of COIN’s Death Cross
Now that we understand the playbook, we can plot an options-based strategy. Perhaps sometime this coming week, the death cross will flash for COIN stock. When it does, we will assume that one month later, COIN will move up, perhaps by double-digit percentage points. Let’s be conservative and say that COIN will rise by 10%.
A simple options strategy would be to buy the $180 call for the options chain expiring May 2. Since COIN stock would be projected to land above $191, the $180 call would eventually become deep in the money.
Another approach is considering a multi-leg options strategy called the bull call spread. For example, one may look at the 170/190 call spread for the May 2 expiration date. This transaction involves buying the $170 call and selling the $190 call. The proceeds from the short call partially offset the debit paid for the long call.
Should COIN stock hit the $190 short strike target at expiration, the trader can earn a maximum payout of almost 65%. Of course, traders can raise the short strike price for a higher-reward opportunity in exchange for higher risk (i.e., the danger that the spread will not break even, thus losing the entire debit paid).
What is the Price Prediction for COIN Stock?
On Wall Street, COIN stock carries a Moderate Buy consensus rating based on 11 Buy, nine Hold, and zero Sell ratings over the past three months. COIN’s average price target of $330.79 per share implies approximately 90% upside potential over the next twelve months.
Death Cross Could Give COIN Stock the Kiss of Life
Although Coinbase is on the verge of printing the death cross, it might not be all bad news for COIN stock. Indeed, historical trends suggest that, at least in the short run, the death cross represents a buying opportunity. By doing some simple arithmetic, one can plot a bullish options strategy that aligns with their risk tolerance to capitalize on COIN stock in the short term.