The bank initiated coverage of the stock with a hold rating and a price target of $55. On Monday, Coinbase shares closed 6% higher at $60.77.
Berenberg estimates that at least 37% of the $736 million of Coinbase’s first quarter net revenue came from the transaction fees and spreads it posted by trading crypto tokens other than bitcoin (BTC) as well as from fees from its staking services.“
At a minimum, these revenue sources likely would be targeted by the SEC in the enforcement action that we expect the commission to file soon,” analyst Mark Palmer wrote, adding that some of Coinbase’s other revenue streams, such as interest income from USD Coin (USDC) and custody, may also “get caught up in the SEC’s crypto-industry dragnet in the near future.”
Successfully pivoting away from the U.S. would be a tall order for the crypto exchange, as about 86% of net revenue that Coinbase generated in the the 12 months ended March 31 came from its U.S. operations, the note said.
Shorting Coinbase shares is too risky a trade, Berenberg said, especially as around 23% of its free float is already sold short. Shorting is a way of betting that a price will decline. An investor borrows a security and sells it in the hope that the price will drop. They then repurchase the security and return it to the lender. The borrower can then pocket the difference if they are right or fork out the difference if wrong.
Wall Street giant Citi cut its rating on Coinbase to neutral from buy earlier this month and slashed its price target for the crypto exchange to $65 from $80, also citing regulatory uncertainty.
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