JPMorgan just lowered its price target for Coinbase Global from $78 to $60 for December.
In a note, JPMorgan analysts wrote, “We think pressure on Coinbase revenue from falling cryptocurrency markets will pressure the stock price.”
On Friday, shares of Coinbased global dropped to $62, after hitting a $72 high on Wednesday. So far the stock has fallen 75% this year, and 11% over the last five days, as it appears a crypto rally is not immediately forthcoming.
In the note analysts predicted Coinbase would see low trading volume for the duration of the rest of this year, but that trading volumes would pick up at the beginning of the first quarter of next year.
Nomics, a crypto volume indexer, noted that Coinbase’s current volumes have dropped 15% over the past month, dropping to $48 billion. That is only 50% of the volumes which Coinbase was seeing at the beginning of the year.
According to the latest data, Coinbase’s revenue is heavily dependent on trading volumes for the time being. Over the longer term, the company plans to reduce its dependency on trading volume by growing subscription services and services products, which was responsible for 18% of revenues in its second quarter.
One of the services that customers have been paying the most attention to is the company’s staking subscription service. The staking service offers rewards to investors who pledge capital towards supporting proof of stake Blockchain protocols. Proof of work blockchain protocols see the blockchain secured by computation-intensive solving of computational problems. Proof of stake protocols require the Blockchain be secured by users who stake capital to become validators of the blockchain. Because it uses less energy, proof of stake is viewed as more environmentally friendly and the future of blockchain cryptocurrencies.
However the Securities and Exchange Commission (SEC) has alleged that proof of stake may trigger U.S. securities laws, clouding the regulatory picture for the protocol and any services offered relating to it.
Coinbase provides staking services for ETH, ADA, SOL, ATOM, ALGO, XTY.
As the Ethereum protocol has completed its Merge transition to proof of stake, staking interest earned through Ethereum has gained greater interest, due to analysts projecting increasing payouts over the coming months. Analysts expect both staking and interest income earned from holding the stablecoin USDC have lower volatility in revenue production than trading.
Goldman Sachs has projected that Coinbase could make $250 to $600 million in staking revenue just from either of those activities alone, which would serve to offset the decline in trading volume being seen during the present crypto-winter.
According to data published on Dune Analytics, Coinbase already holds nearly 14.5% market share in Ether staking.
The one downside is staking comes with what is being called “lockup risks,” since investors cannot withdraw staked Ether until sometime in the second quarter of 2023, when Ethereum implements its Shanghai protocol.
JPMorgan isn’t predicting “much in terms of writedowns” in the third quarter, based off the prices of cryptocurrencies the company holds on its balance sheets, even though, “the quarter is not over and some tokens did see 3Q lows slightly below 2Q lows.”
