Shares in Coinbase Global witnessed a rally on Friday following a rare endorsement by a Wall Street analyst. The cryptocurrency broker’s stock rose by 2% to approximately $125 after Oppenheimer analyst Owen Lau upgraded his rating on the shares to Outperform from Perform. Lau also set a price target of $160.
Coinbase stock, which had experienced significant growth in 2023 by tripling in value, faced a decline of over 25% this year. The rise of cryptocurrency from a bear market and the anticipation surrounding the approval of spot Bitcoin exchange-traded funds contributed to its success.
Despite Coinbase’s remarkable performance, few analysts remain optimistic about the stock. In addition, challenges have surfaced, including allegations from the Securities and Exchange Commission (SEC) that could potentially disrupt the company’s operations. The average rating for Coinbase stock among analysts tracked by FactSet currently stands at Hold.
While the stock has continued to rise, there has been a lack of upward revision in price targets by analysts in recent months. J.P. Morgan even downgraded Coinbase this week.
However, Owen Lau believes in the resilience of Coinbase and its management team. In a note on Thursday, Lau stated, “Coinbase is still standing and fighting for its businesses and the industry.” He emphasized that the company possesses greater strength than perceived and that its management team is more resilient than investors may realize.
The ongoing legal battle between Coinbase and the SEC adds further complexity to the situation. The SEC accuses Coinbase of operating as an unregistered securities exchange, which poses a significant threat to a company primarily focused on crypto trading. However, Coinbase denies offering securities and is engaged in a court battle with the SEC. The outcome of this case is likely to set an important precedent in the digital asset space.
Coinbase’s Future with the SEC Lawsuit
According to Lau, a market analyst, there are two possible outcomes for Coinbase’s ongoing SEC lawsuit: either Coinbase will triumph, or the court will dismiss the case. This is a crucial factor to consider when evaluating the potential success of Coinbase’s stock. The SEC’s lawsuit specifically targets Coinbase’s trading of smaller, non-Bitcoin tokens, which is a significant source of revenue for the company.
Lau also expresses optimism about spot Bitcoin ETFs and their impact on Coinbase. As the custodian for many newly launched crypto ETFs, Coinbase stands to benefit. However, there are concerns that low-fee funds offered by these ETFs could eat into Coinbase’s fee-based trading business.
Despite these concerns, Lau believes that Coinbase’s fundamentals are on an upward trajectory. He asserts that the company’s long-term competitive position remains strong. Lau highlights several factors that could contribute to the company’s success in both the near and long term.
Lau identifies market-share gains in U.S. and global spot crypto trading as a key factor for Coinbase’s continued rally. Additionally, he emphasizes the company’s brand value and compliance infrastructure, which provide it with premium pricing power. He also anticipates the introduction of new crypto ETF products, including proposed funds that would hold Ether.
Lau further points out that interest-rate cuts in the U.S., an upcoming change to Bitcoin’s issuance known as the “halving,” and increased adoption of cryptocurrencies could significantly enhance Coinbase’s financial performance over the next two years.
It will be interesting to observe whether more players in the financial industry on Wall Street will follow Coinbase’s lead.
