Coinbase Grapples with Regulatory Challenges, Analysts Forecast Volatility Ahead

Bitcoin’s recent decline of more than 10% following the approval of spot Bitcoin ETFs by the US Securities and Exchange Commission (SEC) has not only impacted the crypto market but also raised concerns for companies like Coinbase, according to an analyst. Coinbase stock pricing has shown a tight correlation with Bitcoin price movements according to experts.

In a recent interview with Yahoo Finance, Owen Lau, Executive Director at Oppenheimer, discussed the current state of Bitcoin (BTC) and its implications for financial institutions, investors, and Coinbase.

According to Lau, the price of Bitcoin is a crucial factor affecting Coinbase’s performance, especially in the near term.

He highlighted that the US-based crypto exchange is also facing regulatory challenges, particularly an ongoing lawsuit with the SEC. The regulatory uncertainty in the United States adds to the volatility for Coinbase, despite clearer regulations outside the country.

"This bitcoin ETF can bring in new investors," Oppenheimer & Co. Inc. analyst Owen Lau says. "To me, I think it's a net positive for Coinbase longer-term…" pic.twitter.com/9GtRe6JLIM

— Yahoo Finance (@YahooFinance) January 23, 2024

Near-term Volatility for Coinbase Stock

In the interview, Lau further acknowledged the near-term volatility for the firm’s stock, attributing it to the recent sell-the-news event surrounding the approval of spot Bitcoin ETFs.

He suggested that exchange’s stock could experience downward momentum in the short term, given the rapid increase in both Coinbase’s stock (NASDAQ: COIN, up 400% in 2023) and Bitcoin prices leading up to the ETF approval.

When asked about the importance of the Bitcoin price for Coinbase’s stock valuation, Lau said that it is indeed one of the most significant factors.

Additionally, he highlighted the SEC lawsuit and the industry’s overall health as crucial considerations for the stock’s performance.

50% of revenue from non-trading activities

Addressing Coinbase’s business diversification efforts, Lau noted that around 50% of revenue in the third quarter came from non-trading activities, such as interest income, blockchain income, staking revenue, and custody revenue.

The company’s focus on diversifying revenue streams is seen as a strategic move to reduce dependence on trading alone.

Regarding the impact of Bitcoin ETFs on Coinbase, Lau suggested that, despite the short-term volatility, the introduction of ETFs could be a net positive for Coinbase in the long term.

The ETFs are expected to bring in new investors, supporting higher Bitcoin prices and increased trading volume, ultimately benefiting Coinbase.