Coinbase article on Investors business daily
HARRISON MILLER 08:00 AM ET 04/26/2024
It's been a historic year for bitcoin, and Coinbase Global (COIN) has been a key player in it. As a result, Coinbase stock has leapt nearly 25% thus far this year.
Cryptocurrency prices and related stocks are running hot after the launch of spot bitcoin exchange traded funds in January. That sparked renewed interest in digital assets and propelled bitcoin to a record high in mid-March.
Some of that rally appears to have cooled in the wake of bitcoin's recent halving event, which cut the amount of rewards doled out to cryptocurrency miners by 50%. Still, analysts are bullish on the near-term prospects for Coinbase, with first-quarter results due next week.
How The Halving Event Affected Bitcoin
Bitcoin is trading around $63,000, about 14% below its all-time high of $73,798 from March 14. But it's still up 50% in 2024. Its price is essentially flat after bitcoin's fourth halving event, held April 19,
The halving events occur after every 210,000 bitcoins are mined. The idea is to help control the rate at which new bitcoins are created, which takes roughly four years. The total supply is capped at a maximum of 21 million bitcoins.
During the last three halvings, bitcoin averaged a 3,108% price increase in the 12 months following the event, Cathie Wood's ARK Invest (ARKK) noted in a recent email to investors.
After the April 19 event, bitcoin's supply growth fell to an annual rate of about 0.9% from 1.8%. That's below the supply growth of gold on a long-term basis, which was estimated at a 1.7% clip in 2023, according to ARK Invest.
A Divergence Of Opinion
However, analysts are conflicted about the impact this halving will have on bitcoin's price. Some predict the supply shock will propel bitcoin higher. Others believe the market has already priced in this year's halving.
And where bitcoin goes, other cryptos tend to follow. Bitcoin's market cap of $1.26 trillion represents half of the total global cryptocurrency market cap. Its performance can heavily influence other cryptocurrencies and related stocks.
Bitcoin is vital to exchanges like Coinbase as it represented 34% of its total trading volume in fiscal 2023 and 35% of transaction revenue.
Goldman Sachs recently cautioned that current macroeconomic conditions and the high-interest-rate environment are different from previous halving cycles, one report said.
Bitcoin's price in the midterm will depend on supply-demand dynamics and continued demand for spot bitcoin ETFs, Goldman said.
Coinbase Stock: Its Role As Custodian
Coinbase has a central role to play as custodian for the majority of the spot bitcoin ETFs.
Custodial banks in traditional finance settle trades and manage regulatory reporting, dividends and other shareholder services. Custodians keep and manage client assets, such as stocks, which is why stock traders rarely see any of the actual shares they purchase.
Cryptocurrency custodians fulfill a similar role. But there are some key differences that make the process more complex, such as technological, security and storage requirements specific to bitcoin and other digital assets.
Custodians typically charge a fee for assets under custody, or AUC, similar to the traditional finance world. The AUC charges are usually some basis-point charges on the assets that they're contracted to custody.
Who Coinbase Serves
Coinbase is serving as the custodian for eight of the new bitcoin exchange traded fund entrants, including the BlackRock iShares Bitcoin Trust (IBIT), the ARK 21Shares Bitcoin ETF (ARKB) and the Bitwise Bitcoin ETF (BITB).
It also is custodian for the Valkyrie Bitcoin Fund (BRRR) as well as the Grayscale Bitcoin ETF (GBTC), which converted its bitcoin trust to a spot bitcoin ETF. Also, the VanEck Bitcoin Trust ETF (HODL) named Coinbase as its backup custodian in its prospectus.
"We've always said that ETFs would be a win-win for Coinbase, and we're starting to see that play out on our platform," Coinbase Chief Executive Brian Armstrong said on the company's fourth-quarter earnings call in February. He noted that Coinbase custody accounted for 90% of the $36 billion in bitcoin ETF assets at the time.
"We're earning revenue, not just on custody but also on trading and financing. We've already seen great demand as bitcoin is now the second-largest ETF commodity in the U.S., surpassing silver," Armstrong went on to say.
Meanwhile, spot bitcoin ETF assets under management have ballooned to around $53 billion as of April 24, according to data from The Block.
Coinbase recorded $19.7 million in custodial fee revenue for its fourth-quarter ending in December, prior to the ETF launches. FactSet analysts predict the company's custodial fee revenue will increase to $31 million in the first quarter and grow to $52 million in the fourth quarter this year.
Coinbase Earnings Turn Positive
Even though bitcoin's recent drivers haven't shown up in results yet, Coinbase has steadily reported improving financials.
With its fourth-quarter results, Coinbase reported diluted earnings of $1.04 per share, turning positive for the first time since the fourth quarter of 2021. Losses had narrowed during the three quarters leading up to the Q4 report.
Total revenue spiked 51% to $953.8 million, marking the exchange's second consecutive increase after six straight quarters of double-digit declines.
Consumer transaction revenue leapt nearly 60% year over year to $492.5 million and improved from $274.5 million during the third quarter. Institutional transaction revenue increased 173% to $36.7 million, also climbing from $14.1 million last quarter.
Total subscription and services revenue climbed nearly 33% to $375.4 million.
Outlook For Coinbase Stock
Meanwhile, all signs are pointing to a strong first quarter for Coinbase.
Transaction revenue is already accelerating. Coinbase recorded $320 million in transaction revenue through Feb. 13, which is about halfway through the quarter, Chief Financial Officer Alesia Haas said during the February earnings call. The company generated a total of $374.7 million during the first quarter of 2023.
Coinbase predicted subscription and services revenue will range from $410 million to $480 million, compared with $361.7 million for the year-ago period.
Analysts polled by FactSet predict Coinbase will report earnings of $1.05 per share, swinging from a loss of 34 cents per share the year prior. They see revenue jumping 71% to $1.32 billion.
Price-Target Hikes For Coinbase Stock
A number of firms hiked their price targets on Coinbase stock this month, generally based on the booming crypto adoption and heightened activity after the spot bitcoin ETF approvals.
Oppenheimer predicts Coinbase's first-quarter trading volume could increase as much as 107% year over year to $300 billion, one report said. The brokerage is cautious about some near-term volatility but is bullish on long-term blockchain technology adoption, from which Coinbase should benefit.
Oppenheimer hoisted its price target on Coinbase stock to 276 from 200 and maintained an outperform rating on shares.
In its note to clients, Piper Sandler agreed that the new bitcoin ETFs seemed to help drive retail traders back into the market. That should fuel strong first-quarter results for U.S. crypto exchanges and brokers, a report said. Piper Sandler lifted its price target on Coinbase to 245 from 225 but kept a neutral rating on the stock.
Compass Point said in a note that it expects Coinbase to report revenue and adjusted earnings "considerably" above estimates, a report said. That's based on significant volume growth in March and during the first quarter. Compass Point raised its price target by $90 to 325 and maintained a buy rating on Coinbase stock.
Long-Term Challenges
Meanwhile, Mizuho expects Coinbase could top first-quarter revenue estimates by 40%, it was recently reported. Mizuho based that on an influx of retail investors and strong spot cryptocurrency volumes. The firm recently lifted its price target on Coinbase stock to 145 from 84. It maintained an underperform rating on the shares.
Long-term fundamental concerns remain, such as pressure on retail fee rates, Mizuho said. There's also a heavy reliance on lower-quality and cyclical revenue streams like altcoins, staking and interest income, the brokerage said.
Meanwhile, another report said Bernstein has hiked its Coinbase price target to 200 from 80. The brokerage kept a market perform rating on the stock.
"It is simply hard not to be bullish on Coinbase in the very near-term given the high beta to crypto asset prices, especially bitcoin," Bernstein wrote in a note. The firm warned that it believes Coinbase is a "net loser" in the medium term due to ETF approvals potentially pulling some business from Coinbase.
But Coinbase CEO Armstrong is more optimistic about the impact spot bitcoin ETFs have on crypto markets as a whole.
"We want fees to come down and make it lower friction for people to get into crypto through all kinds of different vehicles. ETFs are a massive way to get more capital to come in," Armstrong said during the company's February earnings call. "We're seeing elevated engagement and net inflows on both retail and institutional Q1 to date. So in my view, the ETFs are just a totally positive thing."
Coinbase Stock After The Halving
COIN stock has retreated about 23% from its March 25 peak of 283.48. That marked its highest level since December 2021.
Shares attempted a rebound above their 50-day line on Tuesday but that failed to develop. Coinbase climbed about 3% during the week after falling 14% last week prior to the halving.
COIN stock has a 97 Composite Rating out of a best-possible 99. The Composite Rating combines various technical indicators into one score.
The stock's relative strength line has fallen from its late-March highs but Coinbase is still outperforming the broader market with a perfect 99 Relative Strength Rating.
https://www.investors.com/research/the-new-america/coinbase-coin-stock-spot-bitcoin-etfs-crypto-interest/?src=A00220
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