JPMorgan Analyst Drops COIN Price Target
JPMorgan’s North American Equities team lowers its price target for Coinbase Global shares from $78 to $60 for December.
The publicly traded crypto exchange derives the majority of its revenue from crypto trading levels in the United States, which means its third and fourth quarter earnings depend on crypto trading interest.
“We believe pressure on Coinbase’s revenue from falling cryptocurrency markets will put pressure on the stock price,” the JPMorgan analysts wrote.
Shares of Coinbase Global (COIN) fell from their high of $72 on Wednesday to $62 on Friday. Still hanging above its June lows, the stock has fallen 11% in the past five days and 75% since the start of the year.
Analysts said Coinbase is expected to see low trading volume by U.S. retail crypto investors through December, with hopes that activity will pick up early in the first quarter of next year.
According to crypto volume indexer, Nomics, current Coinbase volumes have fallen 15% over the past month to $48 billion. This figure is only half of the volume that Coinbase’s trading business received at the start of the year.
As of its second quarter results, Coinbase’s revenue is highly dependent on short-term trading volume. Its business strategy aims to reduce trade as a combination of profits by expanding subscription and service products, which accounted for 18% of revenue in the second quarter.
Staking is the Coinbase subscription service that has received the most attention from customers recently. Essential for proof-of-stake blockchain protocols, staking rewards investors who pledge capital with a percentage return.
Regulation of companies offering staking services has become less certain in recent days, with the Securities and Exchange Commission (SEC) alleging the activity could trigger US securities laws.
Coinbase provides staking services for ETH, ADA, SOL, ATOM, ALGO, XTY.
Notably, staking interest earned through Ethereum has been gaining momentum with the Ethereum protocol’s merger transition to proof-of-stake, which some analysts believe will increase interest payments over the coming months.
Staking and interest income from holding the USDC stablecoin is part of the company’s subscription services revenue, which is considered to have lower volatility than trading.
In the second quarter, Coinbase reported that two-thirds of its customers were engaged in what it calls these “non-investment activities” and this was largely due to the staking of Coinbase COO Emilie Choi said at a Goldman Sachs conference.
Based on the assumption that 20%-40% of the ether held by Coinbase is staked, Goldman Sachs projected earlier this month that Coinbase could generate $250-600 million in staking revenue from ether alone, partially offsetting its decline in trading volume during the crypto bear market. .
Although seen as a less volatile revenue stream, JPMorgan’s equity team lowered its near-term expectations for Coinbase’s staking activity, saying it “has less upside given the massive sell-off of crypto” according to the note.
Holding nearly 14.5% market share according to data published on Dune Analytics, Coinbase is already a major player in ether staking.
Yet the activity also comes with “risks of blockage” according to the note. Investors cannot withdraw staked ether until the Ethereum protocol implements its Shanghai upgrade scheduled for the second quarter of 2023.
Although crypto trading volumes remain weak, JPMorgan doesn’t anticipate “much in terms of writedowns” for the third quarter based on cryptocurrency prices on the company’s balance sheet.
“Although the quarter is not over and some tokens have seen 3Q lows slightly lower than 2Q lows,” the team added.
David Hollerith is a senior reporter at Yahoo Finance covering cryptocurrency and stock markets. Follow him on Twitter at @DsHollers
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