JPMorgan downgrades Coinbase, citing ‘disappointing’ bitcoin ETF launch

JPMorgan analysts downgraded Coinbase to underweight on Tuesday.

The stock was previously neutral. Analysts said that while they see Coinbase as the “dominant US exchange in the crypto ecosystem,” they’re concerned that the catalyst which pushed bitcoin to highs not seen in nearly two years won’t last.

The “catalyst in bitcoin ETFs that has pushed the ecosystem out of its winter will disappoint market participants.”

CoinShares data Monday showed outflows of $2.2 billion from just Grayscale’s bitcoin ETF, with multiple media reports claiming that sales of GBTC from the FTX estate led to nearly $1 billion worth of the total sum.

The downgrade, however, didn’t impact the price target of $80. Coinbase (COIN) currently trades around $122 at time of publication. The stock is up nearly 129% in the past year, though it’s dropped 28% in the past month alone.

The price target now reflects the analyst views on the stock’s “normalized earnings” rather than their “previous discounted cash flow approach.” Analysts switched their approaches due to the overall crypto market capitalization. The approach allows them to compare Coinbase’s trading volume to the industry’s market cap.

This isn’t the first time that analysts have voiced concern about the bitcoin ETFs.

“We have benchmarked bitcoin ETFs to the Gold ETF GLD when it launched to similar market enthusiasm in 2004. Despite the enthusiasm, GLD raised $3.5 [billion] in its first year after launch.”

Analysts led by Kenneth Worthington found the first week net flows of $1.2 billion to be “disappointing.”

The Grayscale outflows have now put the overall aggregate net sales below GLD, they noted further.

Outside of bitcoin ETFs, the court battle between the US Securities and Exchange Commission and Coinbase poses a few potential risks, though analysts don’t believe that these risks could impact operations in the near-term.

However, if Coinbase isn’t granted a motion to dismiss then it could face a longer legal path against the SEC, and that would also raise the risk that the SEC could win and force Coinbase to stop offering services such as its Wallet or staking.

The SEC has alleged that both services violate securities laws. Coinbase and the SEC attended a hearing last week to put forth arguments both for and against the motion to dismiss.

It’s not all bad news for Coinbase, the analysts note that the exchange is a beneficiary of “greater revenue opportunities” and could even see “higher trading commission potential” and ecosystem engagement.

Outside of the focus on bitcoin ETFs, JPMorgan noted that ethereum staking is on the rise, which could benefit the stock.

“We believe Coinbase’s earnings power is up significantly — largely driven by the bitcoin ETF news which is supporting digital asset levels elsewhere,” they wrote.

Get the news in your inbox. Explore Blockworks newsletters:

The Breakdown: Decoding crypto and the markets. Daily.
Empire: Crypto news and analysis to start your day.
Forward Guidance: The intersection of crypto, macro and policy.
0xResearch: Alpha directly in your inbox.
Lightspeed: All things Solana.
The Drop: Apps, games, memes and more.
Supply Shock: Bitcoin, bitcoin, bitcoin.