The lingering cryptocurrency downturn has driven Wells Fargo analyst Jeff Cantwell to be cautious with his crypto-related coverage, as he initiated Coinbase Global (NASDAQ:COIN) with an Underweight rating Thursday and set Riot Blockchain (NASDAQ:RIOT) and Bakkt (NYSE:BKKT) to Equal Weight.
While bitcoin (BTC-USD), +0.8%, and other major digital tokens caught a bid in early morning trading, shares of COIN (-3%), RIOT (-3.1%) and BKKT (-1.3%) dipped premarket as stock index futures pointed to a lower opening.
In addition to the challenging crypto environment, Coinbase’s (COIN), America’s largest crypto exchange by trading volume, rising competition from other prominent exchanges like Binance and FTX will eat into its market share, Cantwell wrote in a note to clients.
“We see its early-mover advantages gradually being eroded away as the competition increasingly mimics the COIN ecosystem,” the equity analyst pointed out.
Binance’s recent move to eliminate trading fees for bitcoin (BTC-USD) and ethereum (ETH-USD) will put downward pressure on Coinbase’s (COIN) retail pricing over time, thus weighing on its revenue growth and margins, Cantwell explained.
Take a look at why SA contributor Serge d’Adesky justifies COIN with a Hold rating.
For crypto miner Riot Blockchain (RIOT), Cantwell believes its revenue and EPS expansion will be further constrained, as “lingering impacts from ‘crypto winter’ and a weaker macro environment going forward will weigh heavily on the price of Bitcoin.”
On the other hand, Riot’s (RIOT) estimated cost to mine a bitcoin (BTC-USD) is $10K-12K, meaning its marginal cost of producing BTC remains positive as the token changed hands at $19.2K at the time of writing, Cantwell wrote in a separate note, noting that the company is, as a result, in a “reasonably solid position to weather the current” industry slump.
Looking at digital asset marketplace Bakkt (BKKT), “we see the near-term cash burn/lack of company profitability as significant headwinds for investors to be contemplating at this point in the cycle given the weakening macro environment and likelihood of an extended crypto winter,” Cantwell wrote in another note.
Cantwell, though, sees Bakkt (BKKT) as well positioned for long-term growth since it has “scale, with diversified revenue streams and competitive advantages.”
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