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Coinbase stock is highly sensitive to trends in crypto trading.
Tiffany Hagler-Geard/Bloomberg
Coinbase Global
has garnered a consensus-shattering upgrade, with one analyst seeing a case for shares in the cryptocurrency broker to rip almost three times higher amid a new bullish streak in the price of
Bitcoin
and other digital assets.
Bo Pei, an analyst at U.S. Tiger Securities, upgraded Coinbase (ticker: COIN) to Buy from Hold, raising his price target on the stock to $200 from $65—becoming, by far, the most bullish of more than 20 analysts surveyed by FactSet. Shares in Coinbase closed at $75.14 on Tuesday, and the last time the stock was above $200 was a year ago.
“Crypto has started a new bull run, and so has Coinbase,” Pei said in a Monday note. “We believe crypto price is the main factor to consider when investing in Coinbase. We believe a crypto bull market will drive significant revenue growth.”
Indeed, crypto prices have proved to be a key factor for Coinbase stock, for several reasons. Not only is Coinbase a stock that often moves in step with the price of Bitcoin, but the core of the broker’s business—despite increasing efforts to diversify—remains rooted in fee-based crypto trading. Bull markets see its core audience of retail investors flock to buy digital assets, while bear markets, like the current one, push investors away and see revenue drop.
And digital assets are on an impressive winning streak. While Bitcoin remains well below its late-2021 high near $69,000, the largest crypto has rallied some 70% so far this year from the depths of a bear market to its highest price since June 2022, when the crypto crash accelerated with a string of bankruptcies.
“Our thesis assumes that a new crypto bull market has begun and Coinbase’s revenue and profit could recover to its 2021 level, when Coinbase was trading at above $200,” said Pei. The analyst also pointed to historical trends in Bitcoin price moves—including anticipation of the next “halving,” which decreases Bitcoin issuance—as further evidence of the bullish streak, along with upside for Ether prices.
Nevertheless, Pei sees some risks for Coinbase, chief among which is regulation. U.S. lawmakers and regulators have taken a much harder look at crypto companies in the past year, and scrutiny has only accelerated after the collapse of FTX and the meltdowns of two banks that served the digital-asset industry.
The implosions of
Silvergate Capital
and Signature Bank were initially a setback for crypto prices, but proved to be just a part of a wider panic surrounding banks that has gripped the U.S. and turned out to be a surprising tailwind for Bitcoin.
“The recent Bitcoin rally after the Silicon Valley Bank crisis suggests investors have started recognizing Bitcoin’s value as a decentralized and transparent asset,” said Pei. That puts the analyst in the camp of bulls who see the recent rise in prices as evidence that traders are flocking to Bitcoin as a result of its principles of financial decentralization—even though there may be something else at play.
Stresses across the banking sector have been an unintended consequence of the Federal Reserve ratcheting up interest rates over the past year in a bid to rein in inflation—a trend that has also slammed Bitcoin. With cracks appearing at banks, traders now expect the Fed to be much more accommodative and even see a situation in which rates are cut this year, which would be a boost for prices.
It doesn’t change Pei’s thesis that Coinbase will benefit from a new crypto bull run, but rather underscores just how vulnerable Bitcoin as well as Coinbase—like so many tech stocks—are to the shifting winds of U.S. monetary policy.
Write to Jack Denton at jack.denton@barrons.com
