Coinbase Analyst Sees Clouded Path Forward — Downgrades Stock As Trading Volumes Are Falling

Coinbase Global Inc COIN caught a downgrade from Cowen on Thursday. Shares tanked after analysts warned of declining trading volumes and elevated scrutiny in the wake of the FTX collapse. 

What Happened: Cowen & Co downgraded Coinbase from Outperform to Market Perform and slashed the price target from $75 to $36, citing uncertainty surrounding trading volumes and increased potential for SEC enforcement. 

Cowen noted that Coinbase generates a majority of its revenue from transaction fees, which means its business is highly correlated to crypto prices, trading volumes, and volatility. 

"COIN's monthly trading volumes have seen a fairly consistent drawdown each subsequent month since November 2021, and there remains low visibility into either a stabilization or rebound in retail trading volumes over 2023 given the macro backdrop and FTX contagion risks on crypto asset prices," Cowen analysts wrote in a new note to clients.

The crypto market has been out of favor since falling from the highs. The two largest coins by market cap, Bitcoin BTC/USD and Ethereum ETH/USD, are both down more than 60% over the last year. 

See Also: Check Out What Whales Are Doing With COIN

In early November, FTX and related trading firm Alameda Research filed for Chapter 11 bankruptcy. Cowen believes the FTX fallout has increased pressure on the SEC to bring enforcement actions against existing crypto trading platforms.

"We think there is risk to a material portion of COIN's trading volumes and assets that could be deemed securities by regulators," Cowen analysts said.

Potential catalysts for the crypto space include a U.S. derivatives launch and regulatory certainty, but Cowen doesn't expect crypto legislation to pass until 2024. 

"Our view remains that 2023 will be about laying the foundation for the bill and 2024 will be about passing it," Cowen said, quoting Cowen Washington Research Group analyst Jaret Seiberg.

Regulations aside, Coinbase is going to need to trim its workforce this year in order to bring its cost structure in line with lower trading volumes. The analyst firm expects such to take place in early 2023, otherwise, it becomes a risk factor. 

The headcount reduction is expected to be significant, "potentially up to 40%," Cowen said.

Check This Out: Bitcoin, Ethereum, Dogecoin Rise On Fed's Mostly Bullish Tone: Analyst Sees More Consolidation For Apex Crypto

COIN Price Action: Coinbase has a 52-week high of $246.27 and a 52-week low of $31.83.

Coinbase shares are down 10.90% at $33.61 at the time of publication, according to Benzinga Pro.

Photo: courtesy of Coinbase.