JPMorgan has started advising to buy Coinbase shares. Why does he believe in their 25% growth?

JPMorgan has upgraded the stock rating of Coinbase, the largest publicly traded crypto exchange in the US, to "Above Market", which equates to a buy recommendation. The company's shares have already risen 30% this year, but the investment bank expects them to grow by about a quarter more. Coinbase is now preparing to launch the token Base, the capitalization of which could reach $34 billion, JPMorgan believes.

JPMorgan analyst Kenneth Worthington upgraded shares of cryptocurrency exchange Coinbase from Neutral to Overweight, CNBC reports. He also raised the stock's target price from $342 to $404, which is 25% of the closing price on Oct. 23.

"We are upgrading Coinbase's rating to 'Above Market' as we see new monetization opportunities and risk mitigation at what we believe is an attractive valuation compared to other crypto market players," JPMorgan said in a note quoted by the wire service.

In trading on Friday, the cryptocurrency exchange's securities were up 6.8% to $344.8. They have grown by 30% since the beginning of the year.

Worthington pointed to Coinbase's plans to launch its own Base token, which he believes could accelerate the development of the Base blockchain ecosystem, which was launched in August 2023. The token's potential capitalization, according to JPMorgan estimates, could reach between $12 billion and $34 billion.

"We see the issuance of a token as a win-win situation - for both shareholders and participants in the crypto community. Such a token can incentivize development, expand community engagement and promote infrastructure development," CNBC quoted Worthington's note as saying.

Another growth driver for the exchange's shares may be the use of USDC steiblcoin as part of the promotion of the Coinbase One subscription service. The token's issuer is Circle, which went public this year. "We see Coinbase experimenting with USDC yields to accelerate the growth of Coinbase One and capitalize more on the use of stablecoins on the platform," the analyst said. - Coinbase may incentivize more customers to sign up for a subscription that includes a flat trading fee and increased USDC yields."

Worthington also notes that the threat to Coinbase's business from decentralized platforms siphoning off a share of spot cryptocurrency trading is starting to subside. Coinbase's launch of its own decentralized trading via the Base blockchain will help partially neutralize this pressure.

Analysts at Rothschild & Co. Redburn upgraded Coinbase's stock rating from Neutral to Buy on Oct. 3, and raised their target price from $325 to $417 per share, Barron's wrote. Redburn notes that Coinbase has significantly diversified its revenue sources, reducing its reliance on retail trading commissions and building a full crypto infrastructure capable of serving both institutional and private clients. Since going public in 2021, Coinbase's stock has been in strong correlation with the bitcoin price, which seemed logical at the time, with up to 90% of Coinbase's revenue coming from retail cryptocurrency trading commissions between 2019 and 2021. "This correlation does not reflect the current diversification of the business," said Redburn analyst Nicholas Watts.

Coinbase's share of transaction fees has fallen to around 50%, according to Redburn. Although revenue per transaction may be declining, the growth in trading volumes should compensate for this, the analyst believes. Additional impetus for the stock comes from the growing interest in cryptocurrencies from institutional investors. Coinbase's entry into the derivatives market through its $2.9 billion purchase of Deribit betting exchange, Redburn adds, was also an important step toward diversifying its revenues.

In total, according to Marketwatch, of the 38 analysts tracking the crypto exchange's stock, 18 are advising to buy, 16 are advising to hold, and four are advising to sell. The Wall Street consensus price target is $382.7, which is 18.5% above the current value of Coinbase securities.

This article was AI-translated and verified by a human editor