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JPMorgan Warns of Prolonged Crypto Winter: ETFs Will Disappoint

Last Updated January 24, 2024 10:59 AM
Teuta Franjkovic
Last Updated January 24, 2024 10:59 AM

Key Takeaways

  • JPMorgan downgraded Coinbase stock, citing declining crypto market cap and underwhelming ETF performance.
  • Analysts predict downside pressure on crypto prices, reduced trading volumes, and diminished revenue for Coinbase.
  • Bitcoin sell-off looms as initial excitement around ETFs wanes.

JPMorgan, a leading global investment bank, has issued a warning  about the challenging times ahead for the cryptocurrency market, resulting in the downgrade of Coinbase stock.

The bank highlighted that cryptocurrency prices are currently facing significant pressure and cautioned that the excitement surrounding cryptocurrency ETFs might further diminish.

JPMorgan Lowers Coinbase Rating Amid Pessimistic Market Forecast

As a response to this JPMorgan has adjusted its rating for Coinbase Global (COIN) , shifting from Neutral to Underweight with a set price target of $80. As of the latest reports , Coinbase’s stock is valued at $123.43, marking a 28% decrease over the previous month.

COIN price
Credit: Nasdaq

Kenneth Worthington, an analyst at JPMorgan, elaborated  on the decision in a note on Monday, providing insights into the bank’s rationale behind the downgrade.

“While we continue to see Coinbase as the dominant U.S. exchange in the crypto ecosystem and a leader in cryptocurrency trading and investing globally, we think the catalyst in bitcoin ETFs that has pushed the ecosystem out of its winter will disappoint market participants.”

In his analysis , Worthington set the stock value at $80 per share, indicating a potential 35% decrease in its value. He acknowledged Coinbase’s advancements, such as the development of its derivatives platform and the L2 network, Base. However, Worthington expressed concerns about the declining crypto market cap, exacerbated by the U.S. Securities and Exchange Commission’s (SEC) approval of spot Bitcoin ETFs on January 10.

Worthington noted  that since the launch of these ETFs, the initial net inflow has been considerably lower than anticipated by the cryptocurrency community and less than the inflow observed in the first week of the Gold ETF in 2004. He suggested that the crypto industry might have set overly high and unrealistic expectations for these ETF launches, and while they are significant, they might not meet these lofty benchmarks.

Bitcoin Sell-Off Looms as Initial Exuberance Around ETFs Wanes

The JPMorgan analyst spoke on  on the current state of cryptocurrency markets, noting that prices are already facing downward pressure. He predicted that the initial excitement around cryptocurrency ETFs could wane, potentially leading to lower token prices, reduced trading volumes, and diminished revenue opportunities for companies like Coinbase.

In a related development, another analyst  had previously cautioned about a potential Bitcoin sell-off, expecting a significant outflow of around $3 billion from Grayscale. This forecast followed Grayscale’s conversion of its Bitcoin trust (GBTC) into a spot ETF, a move authorized by the SEC’s approval of spot Bitcoin ETFs.

Instead of anticipated gains, this conversion led to considerable outflows for Grayscale. In contrast, several new spot Bitcoin ETFs, especially Blackrock’s Ishares Bitcoin Trust (IBIT), have experienced notable inflows, signaling a shifting landscape in the cryptocurrency investment market.

The key issue identified is that the initial excitement surrounding the launch of spot Bitcoin ETFs significantly fueled the surge in both cryptocurrency prices and Coinbase’s stock value. Now, as this enthusiasm diminishes, it could similarly trigger a reverse trend, adversely affecting Coinbase’s primary trading business. This potential decline in interest could have substantial implications for the company.

Coinbase faces another challenge: the increasing competition among ETF issuers, leading to a race to the bottom in terms of pricing. This competitive pricing could potentially lure traders away from purchasing Bitcoin directly through Coinbase’s platform, further impacting its market position and revenue streams.

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