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JPMorgan is very bullish on Coinbase. Can the company deliver?
Just a year ago the entire cryptocurrency industry was on the defensive, announcing layoffs and pushing back against regulators as trading all but dried up. Today, all of this seems like a distant memory as doom and gloom has been replaced Powered by the ETF Talk “on the moon”. Unsurprisingly, 2024 has turned out to be very, very good for industry flagship Coinbase, whose shares have risen nearly 70% this year to around $265, and drawn plaudits from analysts at JPMorgan .
Before I turn to JPMorgan, I’d like to note that I’ve seen this movie before, specifically, the 2013, 2017, and 2021 cryptocurrency bull markets, and I have a helpful tip. It’s the same statement Coinbase CEO Brian Armstrong has made over the years: that the bad times of cryptocurrencies are never as bad as they seem and, conversely, that it’s easy to exaggerate the good times. This is true for markets in general, but it is especially true for cryptocurrencies.
As for Coinbase itself, it’s true that everything has been going rosy lately. Not only are the company’s shares soaring, making it a favorite of the same analysts who wrote it off a year ago, but its leadership is showing more care than it has in years. Armstrong is resisting his passion for cultural and war dramas and Hollywood vanity projectsand make the company shine at the product level. This includes being a Bitcoin custodian for newcomers like BlackRock and Fidelity, whose ETFs are turbocharging the current bull market, while also winning acclaim for its popular new Base blockchain.
All of this led to JPMorgan emission an enthusiastic report on Friday that set a $300 price target for the company, and a hint that the best is yet to come: “However, compared to the growth opportunity in exchange and custody offerings, we see an equally exciting opportunity in the development of blockchain use cases today, and we expect Coinbase to participate in much of this continuing evolution.”
Analysts may find these developments “exciting” but, as Armstrong himself warned, good times are never as rosy as they seem. Note, for example, that Coinbase may see an increase in its trading and custody businesses, but that these are basic services whose margins are small and shrinking. When it comes to blockchain services, it is true that the company is innovating. The problem is that the SEC still has its foot on the cryptocurrency industry’s throat and is trying to eliminate new lines of business, meaning it will likely be years before Coinbase can make any real money from Base and other blockchain-related offerings.
JPMorgan may have overstated the bullishness when it comes to most of Coinbase’s offerings, but its analysts have pointed to a portion of the company’s business that could blow the doors off upcoming earnings reports. Specifically, they cite its new offshore derivatives platform as “growing at an extraordinary pace.” This is really good news for the company since, for better or worse, this is where cryptocurrency companies make a lot of money, providing platforms for traders to place hugely leveraged bets and then cash out their positions when they get , in cryptocurrency parlance, “rekt.” In the short term, this is the line of Coinbase’s business that I would watch most closely.
Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts
DECENTRALIZED NEWS
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World currency, the Sam Altman-linked project that scans eyeballs in exchange for digital tokens, has replaced the option to store data on servers in favor of personal safekeeping. (The block)
Lively AI startup Anthropic says it will exclude Saudi Arabia from those seeking to acquire shares in the company as it is being sold in bankruptcy FTX. (CNBC)
A veteran financial columnist warns that “genius premium” investors are paying to own Michael Saylor stock Microstrategy—a proxy for Bitcoin—is not viable in the long term. (WSJ)
One of the two Binance the executives held hostage by Nigeria have escaped while the other, a US citizen, remains detained and faces multiple tax fraud charges (CoinDesk)
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