Trading On margin

Coinbase’s stock is stuck in a rut. NFTs are not the answer.

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The time of dreams


Global is embarking on non-fungible tokens, or NFTs, with the aim of expanding its income base beyond cryptocurrency trading. But investors shouldn’t expect the new product to move the stock, at least in the short term.

Coinbase (ticker: COIN) said on Tuesday that it plans to launch a marketplace for NFT minting, auctioning and trading, including a user-friendly interface and social media features.

NFTs are digital collectibles, whether it’s a tweet, artwork, or music. The owners of NFT have ownership rights to the digital asset, which allows it to be authenticated and traded through the use of a “smart contract”. NFTs are typically based on the Ethereum blockchain, and some have sold for millions of dollars.

NFT trading volume reached $ 10 billion in the third quarter, according to BTIG analyst Mark Palmer. The largest trading platform is Opensea, which traded $ 3.4 billion in volume in August and $ 2.8 billion in the past 30 days, according to Opensea charges a 2.5% selling fee to auction an NFT; after that, a seller can reduce fees or maintain 2.5% for subsequent sales.

Some analysts don’t see NFTs generating substantial revenue for Coinbase. The company reported second quarter revenue of $ 1.9 billion, coming almost entirely from retail and related fields. An additional $ 103 million in revenue came from sources such as custody fees, subscriptions and other services.

“NFTs won’t move the needle for them,” said Dan Dolev, analyst at Mizuho Securities. Trading commissions are declining and becoming commonplace, he says. Coinbase will face continued price pressure in basic retail even as it creates an institutional platform and other services.

“I don’t think it will help them change the narrative, which is the specter of declining transaction income as crypto becomes more and more commoditized,” he says.

Dolev is one of the few analysts to have a Hold rating on the stock. Its price target is $ 220, well below recent prices of around $ 249.

BTIG’s Mark Palmer, however, is much more bullish, seeing NFTs as another arrow in Coinbase’s revenue quiver.

The company was recently blocked by regulators from launching crypto lending products, but it is developing other sources of revenue, such as brokerage and custody services. NFTs are another way the business can attract retail users, says Palmer.

“This is an important step towards diversifying their sources of income, especially given their continued reliance on transaction fees,” Palmer said in an interview. He adds that Coinbase has a “massive footprint” with 11% of the world’s crypto assets on its platform, mostly in Bitcoin and Ethereum.

“An exchange with 11% of all crypto assets in the world has already demonstrated its reach,” he says. “Now he will have the opportunity to introduce NFTs to investors who may not have had any experience with them.”

Another reason to launch NFTs is to fend off competition from apps like PayPal (PYPL), Square (SQ) and

Robinhood Markets

(HOOD). These companies are thriving with cryptocurrency services, with the goal of building engagement with their apps and keeping users in the fold.

“A bundle will be a lot stickier,” says Palmer. “Ultimately, some parts of the platform will be lead products, but they will foster engagement that will translate into increased revenue overall,” he said of Coinbase.

Palmer has a target of $ 500 on the stock, one of the highest on Wall Street.

DA Davidson analyst Christopher Brendler also welcomes the launch of an NFT platform, noting that fees on NFT trading are expected to be a higher margin than institutional trading for Coinbase.

“They’re a little late for NFTs, but it’s also very early in this area,” he said. that of Barron. Brendler also has a buy on the stock, with a target of $ 400.

Even if NFTs don’t take off on Coinbase, the business can still capitalize on their growth. Coinbase Ventures, an affiliate venture capital fund, participated in OpenSea’s second round of funding in 2018, according to

Write to Daren Fonda at [email protected]

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