Coinbase’s stock has experienced a significant surge in recent weeks, rising by 70% over the past month. However, analysts at Barclays are cautioning investors against getting too carried away with the excitement. Benjamin Budish, an analyst at Barclays, downgraded Coinbase shares to underweight from equal weight, citing ongoing challenges in the market.
While we continue to believe Coinbase is a likely longer-term winner in the broader crypto ecosystem, fundamentals remain challenged, and recent relief from price actions, increasing rates, and cost rationalization likely have little further to run, Budish wrote in a note.
Budish pointed out that despite the recent surge in share prices, there are few near-term drivers from a fundamental perspective. He acknowledged that June exchange volumes showed some improvement compared to May, but he described it as merely a temporary halt in the declines. He also expressed concerns about the second quarter’s performance, which he believes was weaker than the first quarter. Additionally, Budish highlighted the risk of regulatory setbacks for Coinbase, particularly in light of the ongoing Securities and Exchange Commission (SEC) lawsuit against the company.
While our downgrade is not based on an assumption that the current SEC lawsuit will result in any particular damage to the company, we nevertheless expect the overhang to weigh on the stock for some time, Budish commented. He added that an industry expert suggested the case could drag on for at least two years.
One factor that has contributed to the recent excitement around Coinbase shares is the potential launch of spot bitcoin exchange-traded funds (ETFs) by various asset managers. However, Budish questioned whether this would truly benefit Coinbase. While Coinbase is expected to be the custodian and prime broker for BlackRock’s ETF, Budish pointed out that if trading and investing were to shift to ETFs instead of spot Bitcoin, it could result in volumes moving away from Coinbase’s exchange. Nonetheless, there could still be a benefit for the company in terms of custodial fees.
Following the downgrade by Barclays, Coinbase shares declined by 1.4% during premarket trading on Thursday. Budish adjusted his price target to $70 from $61 in his latest note. It remains to be seen how investors will react to these warnings, but Budish’s analysis urges caution and a realistic assessment of Coinbase’s prospects within the crypto market.
