In a notable shift, JPMorgan Chase upgraded Coinbase Global Inc. stock on Friday, moving its rating from “Neutral” to “Overweight” and assigning a new price target of $404 per share. This strategic change signals growing confidence in the cryptocurrency exchange’s future prospects.
The fresh outlook comes as JPMorgan identifies promising new revenue sources linked to Coinbase’s Base network, alongside modifications to its USDC stablecoin rewards structure. Following the announcement, Coinbase shares surged by over 9%, reaching approximately $353 and reflecting a robust 42% increase year-to-date.
Understanding Base Token Valuation
The analysts at JPMorgan have estimated that a token associated with the Base network, launched in August 2023 as an Ethereum layer-2 solution, could hold a market value between $12 billion to $34 billion. This token would likely see Coinbase retain about 40% of its supply, potentially translating into an estimated equity value ranging from $4 billion to $12 billion for the company.
Currently, the Base network is performing impressively, processing over 9 million daily transactions and locking in more than $5 billion in total value. Coinbase CEO Brian Armstrong mentioned that while a Base token is under consideration, concrete plans have yet to materialize. In alignment with this, Jesse Pollak, the creator of Base, indicated during a recent conference that a token could accelerate the network’s decentralization.
Changes in USDC Rewards
JPMorgan also analyzed potential margins from changes to Coinbase’s USDC rewards program. Presently, the platform disburses around $400 million annually in interest rewards to its users. However, the bank posits that restricting these rewards to paid subscribers—a model reminiscent of Robinhood’s tiered strategy—could retain approximately $374 million each year. Such a move would likely enhance Coinbase’s profitability as interest rates and USDC yields flatten out.
Additionally, the integration of a decentralized exchange aggregator within the Base application positions Coinbase favorably against increasing competition, especially as decentralized exchanges currently account for about 25% of the total spot crypto trading volume. This strategic feature aims to bolster user experience and engagement within the Coinbase ecosystem.
As the company gears up to announce its third-quarter earnings on October 30, market analysts are optimistic, anticipating earnings of $1.06 per share on revenue totaling $1.74 billion. These figures signal year-over-year increases of 71% and 44.1%, respectively, with subscription and services revenue expected to range between $665 million and $745 million for the quarter.
JPMorgan’s upgrade of Coinbase stock underscores the investment bank’s belief in the company’s innovative approach to embracing the evolving landscape of cryptocurrency and decentralized finance. Investors will be keenly watching as Coinbase continues to navigate these promising developments.
