Coinbase gets hit with a downgrade from BofA as the FTX implosion brings more pain to crypto markets
- Coinbase is "not another FTX" according to Bank of America, but that doesn't mean it's immune from the crypto fallout.
- The bank downgraded Coinbase to "Neutral" and lowered its price target to $50 from $77 in a Friday note.
- BofA listed three headwinds that Coinbase has to deal with in the aftermath of the FTX implosion.
The spectacular implosion of FTX last week has crypto investors now wondering whether contagion will spread to other crypto exchanges, including Coinbase.
According to Bank of America, it feels confident Coinbase is "not another FTX" given that it has $5 billion of cash on hand and had just $15 million of deposits on the FTX platform. Additionally, Coinbase stands to take market share from FTX. But it also opens Coinbase up to various headwinds that could linger for a while.
That's why the bank downgraded Coinbase to "Neutral" from "Buy" in a Friday note and lowered its price target to $50 from $77.
These are the three headwinds Coinbase will have to deal with in the aftermath of the FTX bankruptcy, according to BofA.
1. A lack of confidence in crypto
While institutional trading makes up more than 80% of transaction volume at Coinbase, its core business remains retail crypto trading, which generated 76% of its net revenue year-to-date. That means the lack of confidence among retail investors in crypto could take a toll on its business.
"Diminished confidence in the crypto ecosystem is likely to dampen overall trading activity. In the wake of the FTX news, transaction volumes spiked, but we expect this to be fleeting as some users sell their assets to leave crypto entirely and others move their crypto assets off exchange and into cold storage," BofA said.
2. Delay of regulatory clarity
"2023 was expected to bring some regulatory clarity for crypto, but as a result of FTX's collapse, we think regulatory clarity maybe delayed. We also think any proposed/enacted regulation is likely to be restrictive and/or expensive for exchanges, with the objective of preventing another FTX."
3. Contagion risk could linger
"Contagion risk and the broader fallout from the FTX collapse could linger... Coinbase CFO Alesia Haas said it may take a few more weeks before the full impact of this event is fully understood, and that any meaningful and sustained deterioration in crypto asset prices (i.e. bitcoin price of $10k) would be a material drag on Coinbase revenues."