Only 5 exchanges will survive, Coinbase will be one of them

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  • Cuts are “enough for now” based on the current trading environment
  • Coinbase may be one of the few survivors of the crypto winter
  • Bitcoin is highly correlated with interest rate direction

Oppenheimer executive director and senior analyst Owen Lau talks about Coinbase’s latest round of layoffs and how the crypto exchange’s cost-cutting strategy is helping it survive in the wider crypto space.

Are the cuts enough?

Coinbase recently laid off about 20% of its workforce. Lau says:

It’s enough for me for now based on the current trading environment, but longer term I wouldn’t be surprised by further cuts. They should have just over 3,000 employees after these layoffs.

Does this change the bullish Coinbase rating?

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Oppenheimer’s Coinbase rating is Outperform with a $72 price target. Lau says this doesn’t change the assessment:

If you believe in this technology, blockchain etc. there will be some survivors (from the crypto winter). Longer term, we think Coinbase may be one of the few survivors.

Why are you bullish on Coinbase specifically? How many exchanges do you expect to have left in years to come?

Coinbase is a strong brand, no. 1 in the US. Second, there are the regulations. They are more compliant compared to many other platforms. In the long run, there will be less than five exchanges in the world and Coinbase will be one of them.

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Bitcoin has been very volatile in recent years, although it is now stabilizing around $17,500. Do you see more volatility with Fed rate hikes?

Bitcoin and other digital assets are highly correlated with interest rate direction. If the Fed stops raising interest rates or pivots at the end of this year or next, that should support the price of Bitcoin and other digital assets.

There are other fundamental reasons to be optimistic in this area. One of these is Ethereum’s Shanghai upgrade, scheduled for March 2023, which will allow users to unplug their ETH. Another is Bitcoin’s March 2024 halving.

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What do you expect to see in trading action in the near term? Is it likely to be very volatile?

I think trading will be stable compared to what we saw in 2021. Rising interest rates will benefit Coinbase. They have an agreement where they share interest income with Circle, a major company in the stablecoin market. Coinbase can take advantage of rising prices and make up for some of the lost trade.