Wall Street is bracing for another sequential decline in trading volumes as retail demand fades further alongside the cryptocurrency bear market. The company will also face concerns surrounding cost controls and a recent SEC probe into certain listings.
The question at hand, though, is how much this has been priced into a stock that at its worst levels recently was down nearly 90% from an all-time high hit late last year. A near-doubling in the shares since July 1 – with much of that gain coming in the past few sessions – suggests investors may be looking past the bad news to the next phase of growth.
Indeed, shares have rallied late this week despite slipping cryptocurrency prices after the company announced a partnership with BlackRock to provide the asset management giant’s institutional clients direct access to Coinbase’s trading custody, prime brokerage, and reporting platforms.
Sell-side analysts expect a sizable decline in Coinbase trading volumes from $309 million in Q1. Needham’s John Todaro – who has a buy rating and $89 price target on COIN (current price is $93) – anticipates a 39% drop.
With volumes down, defending market share will be a key, and Mizuho expects a big drop there as well – to 2.9% of global trading volume in July versus an average of 5.3% in Q1.
The decline in volumes and market share suggests Coinbase is being pressured by zero-fee trading platforms, but DA Davidson’s Chris Brendler called such fears «overblown.»
“It misses the significant diversity within retail, underestimating the power of simplicity,” said Brendler in a note to clients. «Despite below-consensus expectations for Q2 and beyond, we’re sticking with Coinbase as we believe the 2022 ‘crypto winter’ will ultimately work to its advantage.” He has a buy rating and $90 price target on the stock.
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Investors will also be looking for comments from Coinbase surrounding a report of an SEC probe into whether it listed unregistered securities, and another investigation into insider trading.
“While the trading in these securities is likely not material, the results of the insider trading cases could set a precedent over which cryptocurrencies are deemed securities, and thus whether or not COIN and other digital asset exchanges should obtain necessary regulatory licenses,” Goldman Sachs analyst Will Nance said in a note to clients.