JPMorgan: Shanghai hard fork and FTX collapse are positive for Coinbase

The upcoming Shanghai hard fork on the Ethereum network and the crypto platforms’ ‘problem child’ status following collapse of FTX support JPMorgan’s ‘neutral’ rating on Coinbase shares. Cointelegraph.

Bank analysts estimated that 95% of clients will express interest in staking Ethereum after the upcoming upgrade of the second-largest cryptocurrency.

Analysts drew an analogy with ‘automatic registration’ of exchange clients into the service for Cardano and Solana. Currently, this occurs in ‘manual mode’ due to the lack of withdrawal capability.

According to their forecasts, the ‘new era after Shanghai’ will add to Coinbase’s annual revenue an additional $225-545 million to the current $50 million [from Ethereum staking].

Additional revenue will support the company, which in early 2023 announced a third round of layoffs and ceased operations in Japan.

The exchange’s net loss in Q3 2022 stood at $545 million compared with $1.1 billion in the previous period.

On 8 December, Coinbase CEO Brian Armstrong said, that amid the crypto-winter the platform’s revenues for the year will be halved relative to 2021.

JPMorgan analysts noted that in the latest reporting period the staking segment accounted for 11% of revenue, versus 6.2% for the same period a year earlier. Ethereum accounts for a quarter of all assets held on Coinbase.

Moody’s analysts consider the challenges of returning the exchange to profitability more deep, despite its strong brand and reputation. The reason lies in the broader downturn in the crypto market. They justified downgrading Coinbase’s rating from investment to speculative — from ‘Ba3’ to ‘B2’.

“The platform is suffering from a material weakening of revenues and cash flow generation due to declines in the prices of digital assets and reduced trading activity”, the report states.

Moody’s, by contrast, assessed the FTX collapse differently for Coinbase’s prospects. Analysts say it could raise compliance costs and thereby undermine the company’s efforts to optimise costs. Heightened scrutiny “could ultimately favour relatively more mature platforms like Coinbase,” they added.

Since the start of the year, Coinbase’s stock has climbed 55.9%. From its 52-week high, the shares have fallen 76%.

ARK Invest’s Cathy Wood in November 2022 spent $21.4 million on Coinbase shares and $8 million in December.

Earlier, The Block noted Coinbase’s share among fiat-on-ramp competitors nearly doubling from September to year-end, from 22.8% to 40%.

The Ethereum team plans to activate the Shanghai hard fork around March 2023. The update includes EIP-4895, which will allow withdrawals of ETH from the staking contract Beacon Chain.

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