Shares in
Coinbase
Global have rallied more than 125% this year, but regulatory pressures that continue to hang over the cryptocurrency broker help make a case for caution on the stock, which was hit by a downgrade on Wednesday.
Coinbase
(ticker: COIN) stock was down 2.7% in U.S. trading on Wednesday, a move lower coinciding with a downgrade of the shares to Neutral from Overweight by
Piper Sandler
analyst Patrick Moley, with a price target cut to $60 from $65. Shares in Coinbase closed on Monday—before the July Fourth holiday—at $79.93.
Piper Sandler’s downgrade comes after a massive rally in the stock this year in the face of fundamental pressures, including U.S. regulatory scrutiny and stagnation in trading volumes amid a depressed crypto market.
Coinbase was charged last month by the Securities and Exchange Commission (SEC), which alleged that the broker was offering some unregistered securities, in a lawsuit that threatens Coinbase’s core trading business. Coinbase has said previously that it would continue operating and would defend itself against the SEC charges in court. Barron’s reached out to Coinbase for comment on the Piper Sandler downgrade.
However, “the recent case brought forth by the SEC, as well as the continued lack of regulatory clarity in the U.S., has created too much uncertainty to prudently project revenues in future years,” Moley wrote in a note.
Nevertheless, shares in Coinbase have been on a tear. Recently, the stock has gained more than 45% in less than a month after
BlackRock
(BLK) filed for a spot Bitcoin exchange-traded fund (ETF) with Coinbase as a custodian, raising hopes of new interest in crypto from retail and institutional investors alike.
Bitcoin
prices have similarly rallied amid optimism of fresh inflows into digital assets.
“However, rising crypto prices have not translated to increased trading volumes for Coinbase in recent quarters and the timing of a spot bitcoin ETF approval is anyone’s guess,” said Moley.
Indeed, Coinbase’s core business remains token trading, and despite Bitcoin seeing its best first-half of a year since 2019, it seems like few new investors are being lured into crypto. Spot trade volumes declined significantly in the second quarter, falling to their lowest level since 2020, according to researchers at crypto data provider Kaiko.
That could weigh on the broker’s revenue in the near term. Piper Sandler, for their part, expects Coinbase to report its lowest quarterly trading volumes and monthly transacting user totals in more than two years, in line with the Kaiko analysis.
“While we continue to believe Coinbase is positioned to be a major player in the space when we do eventually get regulatory clarity in the U.S., we would like to see more progress on the regulatory front and a convincing turnaround in the underlying fundamentals of business before becoming more positive on Coinbase,” said Moley.
Write to Jack Denton at [email protected]
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