It was only a year ago that the entire crypto industry was in a defensive crouch, announcing layoffs and fending off regulators while trading had all but dried up. Today, all of that feels a distant memory as the doom and gloom has been replaced by ETF-fueled “to the moon” chatter. Unsurprisingly, 2024 has also proved to be very, very good for the industry’s flagship company, Coinbase, whose stock is up nearly 70% this year to around $265, and has attracted the acclaim of JPMorgan analysts.
Before turning to JPMorgan, let me note I’ve watched this movie before—specifically, the crypto bull markets of 2013, 2017, and 2021—and have a helpful takeaway. It’s the same one Coinbase CEO Brian Armstrong has made over the years: that the dark times of crypto are never as bad as they seem and, conversely, that it’s easy to exaggerate the good times. This is true of markets in general, but it’s especially true of crypto.
As for Coinbase itself, it’s true that everything is coming up roses of late. Not only is the company’s stock soaring, making it a darling of the same analysts who wrote it off a year ago, but its leadership is showing more focus than it has in years. Armstrong is resisting his penchant for culture war drama and Hollywood vanity projects, and letting the company shine on a product level. This includes being a Bitcoin custodian for newcomers like BlackRock and Fidelity whose ETFs are turbocharging the current bull market, while also winning acclaim for its popular new Base blockchain.
All of this led to JPMorgan issuing a gushing report on Friday that pinned a $300 price target on the company, and a suggestion the best is yet to come: “Still, relative to the growth opportunity in the exchange and custody offerings, we see a just as exciting of an opportunity in the development of blockchain use cases today and expect Coinbase to participate in much of that continued evolution.”
The analysts may find these developments “exciting” but, as Armstrong himself has cautioned, the good times are never quite as rosy as they look. Note, for instance, that Coinbase may be seeing an uptick in its exchange and custody business, but that these are commodity services whose margins are small and shrinking. As for blockchain services, it’s true the company is innovating. The problem is that the SEC still has its foot on the crypto industry’s throat and is trying to stamp out any new business lines, which means it will likely be years before Coinbase can make any real money from Base and other blockchain-related offerings.
JPMorgan may have overstated the bull case when it comes to most of Coinbase’s offerings, but its analysts did point to one part of the company’s business that could blow the doors of upcoming earnings reports. Specifically, they cite its new offshore derivatives platform as “scaling at a tremendous pace.” This is good news indeed for the company as, for better or worse, this is where crypto companies make big money—providing platforms for traders to make hugely leveraged bets, and then cashing in their positions when they get, in crypto parlance, “rekt.” In the short term, this is the Coinbase business line I’d watch most closely.
Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts
DECENTRALIZED NEWS
Bitcoin miners are preparing to ship thousands of machines from the U.S. to Ethiopia as part of a hardware overhaul ahead of the impending halving. (Bloomberg)
Worldcoin, the Sam Altman-tied project that scans eyeballs in return for digital tokens, has replaced an option to store data on servers in favor of personal custody. (The Block)
Buzzy AI startup Anthropic says it is excluding Saudi Arabia from those seeking to acquire shares in the firm that are being sold by bankrupt FTX. (CNBC)
A veteran financial columnist warns that the “genius premium” investors are paying to hold stock in Michael Saylor’s Microstrategy—a proxy for Bitcoin—is not viable in the long term. (WSJ)
One of the two Binance executives being held hostage by Nigeria escaped while the other, a U.S. citizen, remains detained and faces multiple counts of tax fraud (CoinDesk)
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