Barclays Advises Selling Crypto Platform Coinbase Ahead of Earnings Report

Investors Should Dump Coinbase Ahead of Earnings, Says Barclays Analyst

Barclays Analyst Downgrades Coinbase and Lowers Price Target

Barclays analyst Benjamin Budish has downgraded crypto platform Coinbase to underweight from equal weight, while raising his price target by $9 to $70. Despite the increase in the price target, Budish's new target implies that the stock could drop by 18.6% in the next year. The stock has seen a significant surge of over 140% in 2023, rebounding from a decline in 2022. However, Budish believes that the current rally is overdone.

Fundamentals Remain Challenged, Says Budish

According to Budish, while Coinbase may be a likely long-term winner in the broader crypto ecosystem, its fundamentals remain challenged. He argues that the relief from price actions, increasing rates, and cost rationalization that the company has experienced are unlikely to have much further impact. Additionally, exchange volumes in the second quarter are on track to decrease over 30% from the first quarter, and regulatory concerns continue to hamper the sector.

BlackRock's Bitcoin ETF and Potential Impacts

Budish specifically addresses BlackRock's Bitcoin ETF, which is expected to use Coinbase as a custodian and prime broker. He believes that Coinbase's share appreciation following the announcement does not fully reflect the potential impacts to profit and losses, which may not be fully seen for some time. Budish's volume and revenue estimates for Coinbase are below the consensus estimate of Wall Street, while the forecast for interest income is higher than expected.

Barclays Lowers Expectations for Trading Revenues

Looking ahead to future performance, Barclays has lowered expectations for Coinbase's trading revenues. However, Budish notes that this decrease can be offset by higher interest income as the interest rate futures curve moves higher. He also mentions that there may still be some room for Coinbase's shares to rise, but near-term upside is unlikely without increases in interest rates, platform activity, or the USD Coin's market cap.

Barclays isn't the only firm taking a bearish view on Coinbase. Atlantic Equities downgraded the stock to neutral, citing continued regulatory challenges and a weak volume backdrop. Coinbase is expected to report its second-quarter earnings next month.

Implications for New Businesses in the Crypto Industry

The recent downgrade and lowered price target of Coinbase by Barclays analyst Benjamin Budish raises important considerations for new businesses entering the crypto industry. While the specific analysis pertains to Coinbase, there are broader lessons that can be applied by entrepreneurs and investors alike.

Firstly, Budish highlights the importance of assessing a company's fundamentals before making investment decisions. Even though Coinbase may be considered a long-term winner in the crypto ecosystem, its current rally is viewed as overdone by Barclays. This suggests that businesses in the crypto industry should focus on sustainable growth and solid fundamentals rather than relying solely on market sentiment.

Regulatory concerns also continue to pose challenges for the sector. Budish points out that regulatory hurdles are hampering Coinbase and leading to a weak volume backdrop. New businesses entering the crypto industry should closely monitor regulatory developments and ensure compliance with relevant laws to avoid potential setbacks.

Furthermore, the potential impacts of external factors, such as BlackRock's Bitcoin ETF in the case of Coinbase, need to be carefully considered. Budish argues that Coinbase's share appreciation may not fully reflect the future profit and loss impacts. This highlights the need for businesses to assess the potential risks and opportunities associated with partnerships and alliances within the industry.

Finally, it is important for new businesses to manage revenue expectations and explore diversification strategies. Barclays has lowered its expectations for Coinbase's trading revenues but suggests that higher interest income could offset the decrease. Entrepreneurs should explore multiple revenue streams and consider innovative ways to generate income beyond trading volume.

Overall, the analysis by Barclays serves as a reminder that new businesses in the crypto industry should undertake thorough research, focus on strong fundamentals, navigate regulatory challenges, evaluate potential partnership impacts, and diversify revenue sources. By doing so, they can position themselves for long-term success in this rapidly evolving and highly competitive industry.



Article First Published at: https://www.cnbc.com/2023/07/13/sell-crypto-platform-coinbase-before-its-earnings-report-barclays-says.html