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Will Coinbase hit US$520.80 a share?

The biggest US cryptocurrency exchange, Coinbase Global, went public via a direct listing last Wednesday (14 April 2021). It marked the largest listing ever by a cryptocurrency company.

Coinbase opened at US$381, up 52.4% from a reference price of US$250. In the first few minutes of trading, the shares leapt to a peak of US$429.54, and were briefly valued at around US$112 billion. They closed Wednesday at US$328.28 apiece.

The stock continued to seesaw on Thursday. It ended last week on a robust note; by Friday, Coinbase was valued at US$68 billion, more than the owner of the New York Stock Exchange.

On Monday (19 April 2021), the counter dropped 2.6% to close at US$333.

Why are analysts optimistic about Coinbase?

San Francisco-based Coinbase boasts 56 million users worldwide and 11.3% of the cryptocurrency asset market share, Reuters said.

All analysts covering COIN shares are taking a positive view, with five recommending ‘buy’. On average, they’re penciling in a 56% climb over the next year to US$520.80, based on Monday’s close, Bloomberg data showed.

BTIG initiated ‘buy’ with a US$500 target price, highlighting that the company was ‘solidly profitable’ in 2020 and 1Q21.

The ‘gold standard among digital-asset exchanges’, Coinbase is poised for sustained rapid growth as the crypto ecosystem expands, with tailwinds from increased institutional adoption, BTIG analysts Mark Palmer and Andrew Harte wrote.

‘We view COIN’s status as a safe harbour among crypto exchanges – it has never been hacked and has rigorously adhered to regulatory compliance – as a key differentiating factor,’ they said.

Bloomberg Intelligence (BI) analysts believe Coinbase ‘sets the tone’ for the crypto ecosystem as an investment, legitimising the rise of Bitcoin and offering a potentially less-volatile way to invest in digital currencies.

BI added: ‘Newer competitors such as Square, PayPal and Robinhood may pressure pricing, but we believe Coinbase’s scale, technology and compliance back its early-mover advantage.’

What risks does Coinbase face?

Larry Cermak, research director at crypto website The Block, said that after COIN shares stabilise, ‘the correlation to Bitcoin will be very high’.

When the price of the world’s biggest digital token falls, it is ‘inevitable’ that the exchange’s revenue and inherently its stock price will decline as well, Cermak added.

BTIG analysts likewise noted that Coinbase’s dependence on transaction fees to generate revenues has created the potential for volatility in its share price as the crypto markets fluctuate.

However, it has been diversifying its platform and driving subscription revenue, thus BTIG believes Coinbase will continue to do so both organically and via mergers and acquisitions.

There are also potential regulatory risks as Coinbase increases the number of digital assets that users can trade on its platform, Reuters reported.