Shares of Coinbase fell Friday after analysts downgraded the stock and warned crypto contagion risk could spread to the firm after the collapse of rival exchange FTX, and though analysts aren’t expecting anything of the same magnitude, they are warning depressed crypto trading volumes could linger until the confidence in the nascent industry returns.
In a Friday morning note to clients, Bank of America’s Jason Kupferberg lowered his rating on Coinbase shares to neutral from buy «in light of the fallout from the FTX collapse» and gave the stock a $50 target—just 8% above current levels of about $46 and down 54% from a $77 target previously.
«We do not think COIN is another FTX, but the fallout… creates new headwinds for Coinbase that warrant additional caution,» Kupferberg wrote, outlining new headwinds that include «diminished confidence in the crypto ecosystem,» particularly among retail investors who helped make up about 76% of Coinbase’s revenue this year.
Though the analyst says the collapse of a large competitor could ultimately help Coinbase gain market share over the long term, he worries «contagion risk» from FTX could linger, adding some users are selling their assets to «leave crypto entirely,» while others move their assets off exchanges and into cold storage.
In another Friday note, Mizuho analyst Dan Dolev said daily trading volumes have fallen about 35% below their yearly averages «suggesting worn out consumers who appear uninterested» in the «deteriorating» crypto industry; Mizuho gives Coinbase a $42 price target—nearly 10% below current prices.
The notes come after Coinbase CFO Alesia Haas on Wednesday acknowledged the contagion risk, telling Wall Street Journal on Wednesday the «fallout of FTX is becoming much more like the 2008 financial crisis—where it’s exposing poor credit practices and is exposing poor risk management,» before adding it could take weeks to understand the scope of the impact.
Shares of Coinbase fell 5% Friday and have plunged about 12% since FTX began unraveling earlier this month, pushing the stock’s losses to a stark 81% this year—far worse than the tech-heavy Nasdaq’s 30% decline.
What To Watch For
Kupferberg says FTX’s crisis may delay regulatory actions that many were hoping would bring clarity to the crypto space next year. «We also think any proposed [or] enacted regulation is likely to be restrictive and/or expensive for exchanges, with the objective of preventing another FTX,» he adds.
The Global X Blockchain ETF, whose largest holdings include crypto-adjacent stocks such as Block, Coinbase, Marathon digital and Riot Blockchain, has fallen more than 20% this month amid the FTX fallout. It’s down 77% this year.
Fears of global recession and the worst inflation in more than 40 years have wreaked havoc on the nascent cryptocurrency market this year—forcing once high-flying firms into bankruptcy and investors into panic-selling mode. The turmoil has claimed nearly $2 trillion in market value, and the situation has only worsened this month with the sudden collapse of FTX, one of the world’s largest crypto exchanges, which filed for bankruptcy last week. The unraveling has spread to other firms, with crypto lender Genesis, for example, suspending withdrawals on Wednesday and blaming FTX for creating «unprecedented market turmoil» that resulted in «abnormal withdrawal requests” that exceeded the lender’s liquidity.
The Looming $62 Billion Crypto Contagion (Forbes)
New FTX CEO Says Former Billionaire Bankman-Fried Led ‘Unprecedented’ Failure—‘Incessant’ Tweets Undermine Bankruptcy Case (Forbes)
Crypto Lender Genesis Suspends Withdrawals: FTX Collapse Created ‘Unprecedented Market Turmoil’ (Forbes)