June 20, 2024

Coinbase’s Partnership with Circle: A Game Changer for the Crypto Industry?

Coinbase’s Market Share Gains and Strong Balance Sheet Could Help it Survive Crypto Winter

Coinbase, a popular cryptocurrency exchange, may be one of the few companies that can survive the ongoing “crypto winter,” according to Owen Lau, a senior analyst at investment firm Oppenheimer. In a recent interview with CoinDesk TV’s “First Mover,” Lau stated that “if many companies or if some companies go under, Coinbase could be one of the survivors ” Lau also has an “outperform” rating on Coinbase’s stock, with a price target of $73 in next between 12 to 18 months.

In a note published on Monday, Lau predicted that there will be “less than five legitimate crypto exchanges,” with Coinbase being one of them. He believes that if the U.S. Fed Reserve continues to raise interest rates, half of Coinbase’s revenue could be made up of the exchange’s subscription services, which are tied to a partnership with stablecoin issuer Circle. Lau also cites Coinbase’s market share gains, its strong balance sheet, and its short squeeze potential as positives that have yet to be priced into the stock.

Oppenheimer forecasts Coinbase’s 2022 revenue to come in at $3.2 billion, which is a significant drop from its revenue in 2021, which reached $7.8 billion. Coinbase is expected to report 4th quarter earnings toward the end of February. However, it remains to be seen if the exchange will be able to drive revenue via subscription services, as its biggest source of revenue is currently from trading. But given retail investors’ waning appetite and confidence in crypto, this could be a challenge.

On Tuesday, one day after Oppenheimer’s estimates were issued, Coinbase announced that it would be laying off 20% of its workforce, or roughly 950 people. In June, the exchange also laid off  1,000 people. Despite these layoffs, Lau believes that Coinbase is “well positioned to emerge stronger” due to its more regulated and compliant platform, leading position in the digital assets space, strong balance sheet, and high brand recognition.

In summary, Oppenheimer analyst Owen Lau has a relatively optimistic outlook on Coinbase’s future, even as crypto market faces a winter, He believes that the exchange could survive the crypto winter and could be one of the five legitimate crypto exchanges in the near future. Lau also believes that if interest rates continue to rise, Coinbase’s subscription service through Circle may become a significant source of revenue for the company. Oppenheimer forecasts Coinbase’s 2022 revenue to be $3.2 billion, a drop from 2021, but believes that Coinbase has the potential to be well positioned to emerge stronger.

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