Analyst: Only 5 exchanges will survive, Coinbase will be one of them

  • Cuts are “enough for now” based on the current trading environment
  • Coinbase can be one of the few survivors of crypto winter
  • Bitcoin is highly correlated with the interest rate direction

Oppenheimer Executive Director and Senior Analyst Owen Lau talks about Coinbase’s latest round of layoffs and how the crypto exchange’s cost reduction strategy is helping it survive in the broader crypto space. 

Are the cuts enough?

Coinbase recently laid off around 20% of its workforce. Lau says: 

To me, it’s enough for now based on the current trading environment, but longer-term, I wouldn’t be surprised by further cuts. They should have just over 3,000 employees after these layoffs.  

Does this change the bullish Coinbase rating?

Oppenheimer’s Coinbase rating is Outperform with a price target of $72. Lau says this doesn’t change the rating:

If you believe in this technology, blockchain etc., there will be some survivors (of the crypto winter). Longer-term, we believe Coinbase can be one of the few survivors. 

Why are you bullish specifically on Coinbase? How many exchanges do you expect to be left years from now? 

Coinbase is a strong brand, no. 1 in the US. Second, there are the regulations. They are more compliant compared to many other platforms. Longer-term, there will be fewer than five exchanges in the world and Coinbase will be one of them.

Bitcoin has been very volatile in the past few years, although it’s now stabilizing around $17,500. Do you see more volatility with Fed rate hikes? 

Bitcoin and other digital assets are highly correlated with the interest rate direction. If the Fed stops raising interest rates or pivots at the end of this or next year, that should support the price of Bitcoin and other digital assets. 

There are other fundamental reasons to be optimistic in this space. One of them is Ethereum’s Shanghai upgrade, scheduled for March 2023, which will let users unstake their ETH. Another is the Bitcoin halving in March 2024. 

What do you expect to see in trading action short-term? Is it likely to be very volatile?

I think trading will be stable compared to what we saw in 2021. Rising interest rates will benefit Coinbase. They have an agreement where they are sharing the interest income with Circle, a large company on the stablecoin market. Coinbase can benefit from rising rates and offset some of the lost trading. 

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