- Coinbase Global’s main challenge won’t necessarily come from declining retail trading revenue, but from competition from Binance.US and unless it innovates to introduce new products, it will come under pressure unless there is a reversal in interest rate hikes.
Cryptocurrency exchange Coinbase Global has been downgraded to a ‘sell’ rating by Goldman Sachs analysts amid the bearish sentiment pervading the digital asset markets.
Shares of Coinbase Global have largely tracked the decline in cryptocurrency prices, with a 75% slump this year in line with the biggest cryptocurrency by market cap, Bitcoin, which now trades at less than half of what it was worth six months ago.
Goldman Sachs analyst William Nance, suggested in a note to clients that Coinbase Global must make “substantial reductions in its cost base” so that it can dampen the deleterious effect of cash burns as “retail trading activity dries up.”
To that end, Coinbase Global has been cutting jobs while at the same time rescinding offers to new hires as the so-called Crypto Winter sets in.
But while cutting costs is one part of the equation, the exchange also needs to find ways to drum up more revenue in order to make it through the Crypto Winter and on that front, Coinbase Global’s recent discontinuation of Coinbase Pro could be a step in the right direction.
Coinbase Pro was intended to be a platform for institutional investors to access cryptocurrencies, but running two separate platforms, one for retail and one for institutional, would be counterintuitive at a time when volumes are starting to fall given the duplication of cost.
But could Coinbase Global represent a contrarian bet, one for the future?
As of Monday’s close, data compiled by Bloomberg suggests that Coinbase Global has 20 buy ratings, 6 holds, and 5 sell recommendations and the average analyst targets a share price of US$117, well over a 100% from where the exchange currently trades.
Coinbase Global remains well-capitalized, and as long as it can keep expenditure in check, has the potential to last out the Crypto Winter, rewarding shareholders who believe in its potential.
But the exchange also faces stiff competition from Binance.US, a rival cryptocurrency exchange which has the backing of the world’s largest cryptocurrency exchange by trading volume Binance.com.
To that end, Coinbase Global may have its work cut out for it, as Binance.US cutting its trading fees saw an immediate decline in Coinbase Global’s stock price and Binance.US can be a loss-leader for Binance.com, using the ample revenues of its parent to help it weather body blows in a race to the bottom.
Investors looking to pick up Coinbase Global on the cheap need to be cognizant of competition from Binance.US, especially if the latter deploys zero-fee cryptocurrency trading, something which will affect Coinbase Global immensely.
For Coinbase Global to round the corner, innovation is key and it needs to work well with regulators to find new opportunities in new products such as tokenized securities or other nascent asset classes like NFTs.
But the odds of that happening in a hurry are slim to none, especially given that rival offshore exchange FTX’s Sam Bankman-Fried has cozied up with Washington and is now making overtures to acquire retail brokerage app Robinhood Markets (-2.80%).
