Coinbase, the giant of cryptocurrency exchanges is facing challenges from multiple angles. Berenberg Capital Markets’ latest data suggests that Coinbase’s U.S. trading volumes have plummeted significantly. They are down by 52% over the past year and 17% sequentially. Coinbase is preparing to announce its third quarter earnings on November 2, and this downturn coincides with the announcement.
Coinbase’s problems aren’t limited to a decline in trading volume. Berenberg analysts led by Mark Palmer warn that regulatory risks loom large for Coinbase, which is embroiled in several legal disputes in the United States. Coinbase’s efforts to lobby for more friendly crypto regulations are complicated by recent headlines about Hamas using cryptocurrencies.
“Palmer says that recent Hamas actions could undermine Coinbase’s lobbying.”
Geopolitical issues, notably those involving Israel and Hamas have intensified the scrutiny of cryptocurrency’s status. Israeli authorities have frozen over 100 crypto-accounts suspected of aiding Hamas.
The stock keeps on rising, but why?
Coinbase’s shares are not in danger of crashing despite what some have called a “crypto-winter” and the mounting regulatory headaches. Last time I checked, the stock traded at $77.30. This was up 3% on the day and 112% for the entire year. Bitcoin has a year-to date gain of 72%, while Nasdaq is up 29%.
Berenberg analysts maintain a “cautious outlook” on Coinbase. They have a “hold” rating on the stock and set a price target of $39 for it. Palmer, surprisingly, warns against selling the stock short. “COIN has a lot of shorts.” He states that the stock is not investable in the short term, but it could see a sudden upward move as it battles its legal issues with the SEC.
Palmer indicated that the SEC’s case could continue as an “overhang” on the stock. The company’s cash reserves and the potential to cut costs could provide a safety-net in turbulent times.