On February 15th, in the first hour of the day, Coinbase (COIN) stocks opened with a 6% increase, propelled by rising token prices and a recent upgrade note from JPMorgan analysts. JPMorgan analyst Kenneth Worthington, who downgraded the cryptocurrency exchange’s stock in January, has since changed his mind, citing the positive impact of Bitcoin exchange-traded funds (ETFs) on the crypto markets.
Why is the COIN Price Rising?
Kenneth Worthington revised his stock rating from underweight to neutral. The report he wrote to clients on February 15th was publicly disclosed as follows:
“Given the recent acceleration in flows into Bitcoin ETF funds and significant appreciation in both Bitcoin and now Ethereum, as we look into the first quarter of 2024, we are returning to a Neutral rating on Coinbase, as we see elevated cryptocurrency prices not only sustaining activity levels but also improving Coinbase’s earnings power.”
Bitcoin ETF funds exceeded expectations, amassing $10B+ in assets in their first month of trading. Coinbase custody partnered with many Bitcoin ETF fund managers in January. Expected fees for Coinbase: $25-30M.
Notable Details about Coinbase
Downside: Exchange may not post profit this year. According to an analysis by InvestingPro, Coinbase’s operating income margin is negative at 55.53%. This profitability metric measures a company’s profitability after paying its variable costs.
Bloomberg analysts foresee exchange facing $16M losses in Q4 2023. However, some experts are challenging this prediction. Todaro forecasts Coinbase may achieve $103M in net income, potentially restoring profitability after two years.
Coinbase is also facing challenges due to legal issues with regulators. SEC filed suit in June 2023, alleging exchange offered unregistered securities.
However, investors seem to be looking at the exchange’s long-term prospects. The stock has seen a 131% increase in its one-year price total return. InvestingPro suggests COIN’s high Price/Book ratio implies potential overvaluation relative to net assets.
Note
Disclaimer: The information contained in this article does not constitute investment advice. Investors should be aware that cryptocurrencies carry high volatility and therefore risk, and should conduct their own research.
