In Bloomberg Coinbase Global Inc. is enjoying a boost in sentiment as the much-awaited launch of an exchange-traded fund that makes direct Bitcoin investments looks close at hand. This is raising hopes for a broad spike in demand and, it seems, encouraging some investors to ignore the uncertainties surrounding the biggest cryptocurrency exchange in the United States.
Analysts warn that while a spot Bitcoin ETF launch in the US would attract more investors, it might also drive them away from the platform. Coinbase’s future is further clouded by the Securities and Exchange Commission case that was filed in the first half.
When the corporation reports its third-quarter results later on Thursday, it is anticipated that its financial performance would improve despite the overhang. Despite the fact that trade activity has probably decreased by more than 50%, experts polled by Bloomberg are projecting $654.7 million in income, up from $590 million in the same period last year. According to John Todaro, an analyst at Needham & Co. who rates the shares a “buy,” Coinbase’s top line is benefiting from higher contributions from its partnership in the USDC stablecoin, which is earning more interest income on its reserves due to higher interest rates, as well as from higher fees Coinbase receives from its trading customers.
Estimates indicate that Coinbase’s quarterly loss decreased to approximately $130 million from $544.6 million during the same period last year. Even so, it would mark the seventh straight quarter of losses due to the industry’s ongoing struggles and the decline in cryptocurrency values from their peak in late 2021.
This year, Coinbase’s stock has increased by almost 120% to about $78. Despite the recent surge, the stock remains well behind its peak of over $400, which was attained during the company’s initial Nasdaq listing in April 2021.
TD Cowen analyst Stephen Glagola, who rates the shares as “underperform,” stated that while investors are ignoring possible regulatory developments, a large portion of the stock rise can be attributable to the euphoria surrounding Bitcoin ETFs. “This company faces an existential crisis regarding its ability to stay in business as is while this lawsuit with the SEC is pending.” According to him, Coinbase might split into an exchange, a retail brokerage, and a custodian if it loses the SEC case.
The SEC has levied several charges against the corporation, including that it operates an illicit exchange. Coinbase is contesting the allegations.
As more small-scale investors pour money into Bitcoin, including through Coinbase’s platform, ETF frenzy may help Coinbase’s retail division. Several planned spot Bitcoin ETF funds intend to employ the company’s custody services, making it a potential growth accelerator even if the combined custodial and institutional trading revenue is a small portion of its retail trading sales.
“A Bitcoin ETF increasing BTC prices and on the back of that growing retail volumes broadly would be the larger impact to COIN revenue,” Todaro stated.
Benefits from the upcoming “Bitcoin havening,” which will see a halving of the quantity of new coins created in the first half of next year, are also anticipated. Previous havening’s have usually produced rallies, and those have drawn more individual investors into the market, which are Coinbase’s mainstay clients. Since the start of the year, Bitcoin has doubled in value, and it recently increased due to the ETF frenzy.
There are already hints of potential improvement in trading volume.
In the third trimester Todaro stated, “We anticipate another quarter of declining volumes, but things are starting to look up as October will outpace September, which hit a cycle low.” According to researcher CCData, Coinbase’s spot trading volume in the third quarter was down 52% from the same period last year and was perhaps the lowest since the company became public.
However, there is still worry that Coinbase shares may become less of a proxy for the cryptocurrency market as a result of ETFs.
“Is the offset that individuals can purchase the ETF in a standard brokerage account, negating the need for them to trade Bitcoin on Coinbase?” stated Barclays analyst Benjamin Budish, who rates the stock as “underweight.” “Coinbase would suffer from that.”