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Mizuho Outlines 3 Reasons Why It Remains Cautious on Coinbase (COIN) Despite a Move Higher in Bitcoin (BTC)

August 18, 2021 7:33 AM EDT
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Price: $267.62 +4.25%

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Mizuho analyst Dan Dolev reiterated a “Neutral” rating on Coinbase (NASDAQ: COIN) despite a move higher in Bitcoin (BTC).

The world’s largest cryptocurrency soared from about $29,000 to nearly $50,000 this week after sellers failed to sustain a move below $30,000.

Dolev outlines three reasons why remains cautious on COIN:

(1) Coinbase Likely Ceded Some Bitcoin Market Share in 2Q

‘We estimate COIN ceded about 10bps of Bitcoin market share in 2Q. This marks a reversal vs. prior trend, which exhibited share gains. As a reminder, COIN experienced a mix shift away from Bitcoin in 2Q (BTC was 24% of volumes, down from 39% in 1Q). Management attributed this shift to a modest Q/Q decline in Bitcoin volume, meaningful growth in Ethereum volumes, and the addition of new crypto assets to the platform. While all the above are likely true, it still does not fully explain the apparent decline in share,” Dolev said in a note.

(2) Retail Users Traded Less in 2Q

“COIN reported impressive Q/Q user growth to 8.8mn MTUs in 2Q. However, users appear to be trading less. This also marks a reversal of the prior upward trend. Assessing trading volume per retail MTU shows a -16% Q/Q decline in 2Q, with declines seen in incremental volume per user, too.”

(3) Institutional Yield Declines May Foreshadow Crypto Fee Compression

“Yield on institutional trading volume declined to 3bps in 2Q, down from 4bps in 4Q20-1Q21 and 5-6bps earlier in 2020. This could be a sign of what’s to come for crypto trading fees in the future, as our thesis is predicated on shrinking commissions on crypto transactions over time.”

Still, Dolev raised the price target to $220.00 per share from $210.00 as he believes the company is now less dependent on retail trading fees.

“COIN's reliance on trading fees - particularly retail trading fees - is a long-term risk given potential fee compression in crypto trading. In 2Q, retail transaction fees as a % of net revenue was 90%, down from 91% in 1Q and 92% in mid-2020. Continued diversification away from trading fees as a revenue source should be viewed positively, in our view,” he further added.

Shares of Coinbase fell 2.35% yesterday to close at $250.80.



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