Coinbase Global Inc.’s shares have experienced a remarkable surge of 70% over the past month. However, Benjamin Budish, an analyst from Barclays, has expressed a more cautious outlook for the company.
In a recent downgrade, Budish lowered his rating on Coinbase shares from equal weight to underweight. While acknowledging the potential for Coinbase to be a long-term winner in the cryptocurrency market, Budish believes that the company’s fundamentals are still facing significant challenges. He suggests that recent relief from price actions, increasing rates, and cost rationalization have likely exhausted their positive impact.
Despite the recent rise in share prices, Budish points out that there are few immediate drivers to sustain this growth from a fundamental perspective.
Budish also comments on the exchange volumes for June, which show some signs of improvement compared to May. However, he considers these improvements only as a halting of previous declines. Looking at the second quarter as a whole, Budish believes it was weaker than the first quarter, and he expresses concerns that July trends may be even worse than those of June.
Furthermore, Budish highlights the ongoing regulatory risks that Coinbase faces. The Securities and Exchange Commission has filed a lawsuit against the company, accusing it of operating an unregistered national securities exchange.
In summary, while Coinbase’s recent surge may have captured attention, it is important to remain aware of the potential challenges and uncertainties ahead for the company.
Don’t miss: Coinbase’s stock has been on a surge, but analyst says the pop ‘may prove short-lived’
The Impact of the SEC Lawsuit on Coinbase Shares
Overview
In light of the recent SEC lawsuit against Coinbase, analysts have expressed concerns about the potential impact it may have on the company’s stock. While they do not anticipate significant damage, they believe that the lawsuit’s uncertainty will continue to weigh on the stock for an extended period. Additionally, discussions with industry experts suggest that the case could potentially drag on for at least two years.
Uncertainty Surrounding ETFs
Coinbase shares have experienced a surge in excitement due to the increasing number of applications for spot Bitcoin exchange-traded funds (ETFs) filed by various asset managers. However, doubts have been raised about whether Coinbase will genuinely benefit from these developments.
Barclays analyst Budish questions whether a successful launch of an ETF will directly translate into a profit and loss (P&L) benefit for Coinbase. While Coinbase is expected to serve as the custodian and prime broker for BlackRock’s ETF, as well as the surveillance-sharing exchange partner with Cboe’s BZX Exchange for five ETF applications, the correlation between an ETF launch and tangible benefits for Coinbase remains unclear. The analyst speculates that if institutional and retail trading and investing were to shift towards ETFs instead of holding spot Bitcoin, there might be a decrease in volumes on Coinbase’s exchange. Instead, these volumes would move onto traditional stock exchanges where these products would be traded. However, custodial fees could serve as a compensating factor for Coinbase.
Stock Performance
As a result of these concerns and uncertainties, Coinbase shares experienced a 1.4% decline in premarket trading on Thursday. The stock closed at $85.95 on Wednesday. Despite this decline, Budish has increased his price target for Coinbase from $61 to $70, indicating some optimism about the company’s future potential.
