What happened
Amid the crypto market turmoil generated by the collapse of FTX, many investors are worried about how its fellow exchange operator Coinbase (COIN +0.39%) will perform from here. This week has been a mixed bag. Coinbase stock initially surged on the expectation that the bankruptcy of a key competitor could lead to the U.S.-focused crypto exchange gaining market share. But over the course of Wednesday and Thursday, the company's shares sank by more than 12%. The declines continued Friday morning, with Coinbase stock plunging by another 7.1% as of 11:58 a.m. ET.
NASDAQ: COIN
Key Data Points
Friday's decline appears to have been spurred by a bearish analyst note from Bank of America. Analyst Jason Kupferberg slashed the price target on Coinbase from $77 per share to $50 per share, and cut its rating from buy to neutral. Last week, Goldman Sachs slashed its price target on Coinbase to $41 per share from $49 per share, and maintained its sell rating.
So what
It's clear that analysts have reason to be bearish about Coinbase. While it's one of the most prominent centralized crypto exchanges, contagion fears have put investors and analysts in a difficult position. On the one hand, FTX's implosion offers the potential for Coinbase to capture more market share and trading volume. On the other, declining aggregate trading activity and systemic risks may lead to further valuation compression, at least in the near term.
Interestingly, neither the Bank of America nor the Goldman Sachs analysts are worried that Coinbase will be the next FTX, and they generally took the view that it's relatively well-insulated from the FTX fallout. However, the Bank of America note succinctly summarized three risks for those holding Coinbase stock right now: "Dampened trading activity thanks to weaker confidence in crypto, delayed regulatory clarity and the possibility that contagion leads to an even wider fallout for the industry."
Now what
Coinbase's stock price has been under pressure throughout the year due primarily to its underwhelming earnings results and concerns around potential margin degradation. In that sense, the fallout from the FTX collapse could be seen as a net positive, as that exchange was among the lowest-fee options for traders, and therefore put downward pressure on its peers' trading fees.
That said, this year's underperformance has led Coinbase management to undertake multiple rounds of layoffs. It has cut more than 18% of its workforce so far. Like many other tech companies, Coinbase appears to have built an infrastructure that's too big for the current market. With crypto valuations remaining on a bearish trajectory, it's unclear whether trading volumes will eventually recover, or whether they will remain permanently stunted.
In this market, investors appear to be taking a similar view to Wall Street analysts. Trading at roughly $46 per share, Coinbase is now within spitting distance of its all-time low.
