Shares in Robinhood Markets, Inc. (HOOD) jumped nearly 11% Wednesday after the commission-free brokerage firm said it will begin testing crypto wallets with select clients next month. If all goes to plan, it hopes to undergo a broader rollout in early 2022, which would allow customers to transfer selected digital currencies in and out of the Robinhood app.
- Robinhood said it will start testing crypto wallets in October, with plans of a broader rollout in early 2022.
- Robinhood shares broke above two weeks of consolidation on increasing volume that may lead to more bullish price action.
- Coinbase shares have rallied from an ascending channel's lower trendline, indicating that the bulls intend to defend this level.
Despite Robinhood expanding its crypto offerings, recently listed digital currency exchange Coinbase Global, Inc. (COIN) also added gains Wednesday as investors shrugged off concerns of increasing competition in the rapidly growing crypto trading and investing space.
Let's take a closer look at the two stocks and use technical analysis to unearth possible trading plays.
Robinhood Markets, Inc. (HOOD)
The company—best known for its commission-free stock trading—currently offers cryptocurrency trading in leading coins—such as Bitcoin, Ethereum, Litecoin, and Dogecoin—but it doesn't allow users to transfer their digital assets to or from its platform. Adding a wallet would help Robinhood onboard clients seeking an all-in-one solution for investing in crypto, as opposed to those just speculating on price direction. As of Sept. 23, 2021, Robinhood stock has a market value nearing $40 billion and is trading 23% above its initial public offering (IPO) price of $38. In the past month, the shares have gained around 10%.
After surging into the low $80s several weeks after going public, the Robinhood share price gave up about half of those gains to trade just below $40 by early September. However, yesterday's announcement may rejuvenate the bulls, with the stock breaking above two weeks of consolidation on increasing volume. Those who buy at these levels should look for a retest of the all-time high at $85 while managing risk with a stop-loss order placed just beneath the recent consolidation area low at $39.23.
Consolidation in technical analysis refers to an asset oscillating between a well-defined pattern of trading levels. Consolidation is generally interpreted as market indecisiveness, which ends when the asset's price moves above or below the trading pattern.
Coinbase Global, Inc. (COIN)
Founded in 2012, Coinbase positions itself as the leading cryptocurrency exchange in the United States, serving as a fiat gateway and trading platform for nearly 70 million verified users. Currently, Coinbase Pro calculates fees through a pricing tier using the maker-taker fee model, whereas Robinhood takes a cut of the bid/ask spread. Coinbase recently scrapped plans to launch a lending product after the Securities and Exchange Commission (SEC) indicated that it would sue, arguing that Coinbase's proposed "Lend" offering involved securities.
Investors should be increasingly mindful of a changing regulatory environment when investing in stocks that have exposure to digital assets after SEC Chairman Gary Gensler assured lawmakers last week that the agency is working to create a set of rules to oversee cryptocurrency markets. Through Wednesday's close, Coinbase stock has a market capitalization of $63.34 billion and is trading 3% below its $250 Nasdaq pre-listing reference price.
Since bottoming out in mid-May, Coinbase shares have oscillated within an ascending channel to establish clear support and resistance zones. More recently, the stock has rallied from the pattern's lower trendline, indicating that the bulls intend to defend this level. Active traders who take a long position here should consider setting a take-profit order at the channel's opposing side somewhere north of $285. Be prepared to exit with a small loss if the price fails to hold above this week's low at $231.15.
An ascending channel is the price action contained between upward sloping parallel lines. Higher highs and higher lows characterize this price pattern. Technical analysts construct an ascending channel by drawing a lower trendline that connects the swing lows and an upper channel line that joins the swing highs.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.