The publicly-listed crypto exchange, Coinbase Global (COIN), landed its first bullish analyst recommendation this week — but the shares have gotten little benefit amid broad-based weakness in cryptocurrencies.
Most of the largest digital coins have slid this week, with Coinbase’s stock following suit. On Thursday, the stock gained over 1% intraday, but is hunkered near the lower end of its 52-week range.
In fact, Coinbase’s stock has tumbled for most of September, a month that’s been brutal for risk-sensitive assets. It recently changed hands near $226, a far cry from where it started the month at a high of $278 on September 3.
However, JMP Securities initiated coverage of the stock this week, rating it as a “Buy” even as the crypto sector gets whipsawed by market turbulence and regulatory uncertainty. The investment banking firm set a price target at $300.
“I can’t think of any other company with 70 million customers that generates roughly $7 billion in revenues that’s in its first or second inning as a business,” Devin Ryan, analyst and director of JMP’s financial technology research, told Yahoo Finance.
“If you look at [Coinbase’s] business mix today, 85% of their revenues come from trading activities. They’re already building out a number of areas that could become even larger than their trading business,” he added.
And despite its poor performance this month, bulls see a buying opportunity. Cathie Wood’s Ark Invest bought over $42 million Coinbase shares this week for its ARKK ETF, making its total Coinbase shares owned in the ETF worth over $1 billion.
Regulation and crypto
Coinbase’s revenue opportunity and hurdle is in developing other crypto-related businesses outside of its trading services. Unlike Robinhood (HOOD) which just launched its crypto wallet, the company’s optimistic future is one where a lower percentage of its revenue draws from trading fees.
While Coinbase’s subscription and services businesses — such as crypto asset custody, issuing and staking — made up less than 4% of its total revenue through the first half of 2021, executives have signaled in several recent interviews that growing this side of its business is a priority.
To that end, the company raised $2 billion from the sale of its junk bonds midway through September but its crypto lending product, Coinbase Lend, which will not see the light of day thanks to the Securities and Exchange Commission (SEC) deeming the product a security.
While now defunct, Lend opened opened debate around cryptocurrency regulation in the U.S. Coinbase’s CEO has been critical about how top financial regulators have handled the situation. And as the discussion about crypto regulation heats up, industry influencers are staking out their positions.
“You can’t legislate a market out of existence,” Coin Metrics’ Nic Carter told Yahoo Finance Live this week. “You can hold back its growth for a period of time within your borders… but… it would have to take an extreme turn towards authoritarianism for cryptocurrency to be legislated out of the U.S.”
Dubbed the so-called “White Knight” of crypto since its earliest days as a startup backed by the Silicon Valley venture capital monolith, Andressen Horowitz, Coinbase has aimed to be the tried and true digital bank for crypto since the early 2010s. At that time, the asset class had a closer association with online drug markets and a fringe community of hackers, anarchists and libertarians.
Since that time, the company has spent more time than most trying to make crypto investing and user experience more friendly to newcomers. It’s also made 18 different acquisitions in the effort to expand its business model.
That makes owning COIN a less volatile option for investors looking to gain some exposure to the hot and volatile asset class, according to JMP’s Ryan, who argues the stock tends to reflect the spikes and drops of other cryptocurrencies in a less dramatic way.
Coinbase’s stock didn’t suffer as much as Bitcoin (BTC-USD) did after China shocked the market by banning crypto mining. But it has performed more symmetrically with BTC than many newcomers to cryptocurrency might expect.
The exchange “is becoming the infrastructure of the crypto economy so if the crypto economy grows, that should be very good for Coinbase,” Ryan continued.
Since its initial public offering IPO in early April, Coinbase has been busy flexing its know-how through its blockchain analytics group, Coinbase Analytics, which recently landed a government contract. And its lesser known Coinbase Cloud division is also angling to to become “the [Amazon Web Services] AWS of crypto,” as Ryan put it.
While Ryan acknowledged the stock’s sharp decline over the past month, and regulatory uncertainty hanging over the sector, he said COIN is a bigger bet on infrastructure building and adoption of cryptocurrencies.
Disclosure: JMP Securities expects to receive OR intends to seek compensation for investment banking services from Coinbase Global, Inc. in the next 3 months.
David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.
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