FTX ‘Contagion Risk’ Fuels Coinbase Price Drop – Analyst Worries Users ‘Will Completely Abandon Crypto’

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Topline

Shares of Coinbase fell Friday after analysts downgraded the stock and warned that crypto contagion risk could spread to the company following the collapse of rival exchange FTX. until confidence in the nascent industry returns.

Key Facts

In a letter to clients Friday morning, Bank of America’s Jason Kupferberg downgraded his rating for Coinbase stock to neutral from buying “in light of the fallout from the FTX collapse” and gave the stock a target of $50 — just 8% above the current level of about $46 and down 54% from a previous target of $77.

“We don’t think COIN is another FTX, but the fallout…creates new headwinds for Coinbase that warrant additional caution,” Kupferberg wrote, outlining new headwinds, including “diminished confidence in the crypto ecosystem,” notably among private investors who helped make up about 76% of Coinbase’s revenue this year.

While the analyst says the collapse of a major competitor could ultimately help Coinbase gain market share in the long run, he fears FTX’s “contagion risk” could linger, adding that some users are selling their assets to “fully sell crypto”. leave”, while others move their assets from exchanges and into cold storage.

In another Friday report, Mizuho analyst Dan Dolev said daily trading volumes have fallen about 35% below their annual averages “indicating worn-out consumers who seem disinterested” in the “deteriorating” crypto industry; Mizuho gives Coinbase a price target of $42, almost 10% below current prices.

The notes come after Coinbase CFO Alesia Haas acknowledged the contagion risk on Wednesday, telling the Wall Street Journal on Wednesday that “the fallout from FTX is much more like the 2008 financial crisis — where it exposes bad credit practices and exposes poor risk management,” before adding , it may take weeks to understand the magnitude of the impact.

Shares of Coinbase fell 5% on Friday and are down about 12% since FTX began unraveling earlier this month, pushing the stock’s losses to a staggering 81% this year — far worse than the 30% drop of the stock. tech-heavy Nasdaq.

What to watch out for

Kupferberg says FTX’s crisis may delay regulatory action many hoped would bring clarity to the crypto space next year. We also consider every proposal [or] regulations enacted are likely to be restrictive and/or costly for exchanges, with the aim of preventing another FTX,” he added.

tangent

The Global X Blockchain ETF, whose largest holdings include crypto-adjacent stocks such as Block, Coinbase, Marathon digital, and Riot Blockchain, is down more than 20% this month amid the FTX fallout. It’s down 77% this year.

Key background

Fears of a global recession and the worst inflation in more than 40 years have wreaked havoc on the nascent cryptocurrency market this year, driving once high-flying companies out of business and sending investors into a frenzy. The turmoil has claimed nearly $2 trillion in market value, and the situation has only worsened this month with the sudden collapse of FTX, one of the world’s largest crypto exchanges, which went bankrupt last week. The unraveling has spread to other companies, with cryptocurrency lender Genesis, for example, suspending withdrawals on Wednesday and blaming FTX for creating “unprecedented market turmoil” that resulted in “abnormal withdrawal requests” that exceeded the lender’s liquidity.

Read further

The looming $62 billion crypto contagion (TBEN)

New FTX CEO says former billionaire Bankman-Fried led ‘unprecedented’ bust – ‘incessant’ tweets undermine bankruptcy case (TBEN)

Crypto Lender Genesis Suspends Withdrawals: FTX Collapse Created ‘Unprecedented Market Turmoil’ (TBEN)

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