JP Morgan’s North American equities team has lowered its December price target for Coinbase Global shares to $60 from $78.

As listed crypto exchanges derive most of their revenue from U.S. crypto trading levels, Q3 and Q4 earnings will be driven by crypto trading interest.

“We believe the pressure on Coinbase’s earnings due to the decline in the cryptocurrency market will put pressure on the share price,” JP Morgan analysts wrote.

Coinbase Global (COIN) shares fell from a Wednesday high of $72 to $62 on Friday. While still above its June low, the stock is down 11% over the past five days and 75% year-to-date.

Coinbase is expected to see a rebound in activity early in the first quarter of next year, with low trading volumes by U.S. retail crypto investors through December, analysts said.

Coinbase’s current trading volume has fallen 15% in the past month to $48 billion, according to cryptocurrency trading volume index Nomics. This figure is only half of what Coinbase’s trading business received at the beginning of the year.

As of Q2 earnings, Coinbase’s earnings are heavily dependent on short-term trading volume. The company’s business strategy aims to reduce transactions as a revenue mix by growing subscription and services products, which accounted for 18% of revenue in the second quarter.

Staking is the coinbase subscription service that is getting the most attention from customers these days. Proof of Stake Key to blockchain protocols, staking rewards investors who commit capital with a fixed rate of return.

People watch as the logo of Coinbase Global Inc, the largest US cryptocurrency exchange, is displayed on a jumbotron at the Nasdaq MarketSite in Times Square, New York, USA on April 14, 2021.  REUTERS/Shannon Stapleton

People watch as the logo of Coinbase Global Inc, the largest US cryptocurrency exchange, is displayed on a jumbotron at the Nasdaq MarketSite in Times Square, New York, USA on April 14, 2021. REUTERS/Shannon Stapleton

The regulation of companies offering staking services has recently been subject to increased uncertainty as the Securities and Exchange Commission (SEC) claims it could impact US securities law.

Coinbase offers staking services for ETH, ADA, SOL, ATOM, ALGO and XTY.

In particular, staking interest earned through Ethereum is gaining momentum as the Ethereum protocol Merge moves to Proof of Stake, with some analysts predicting more interest payments in the coming months. doing.

Staking and interest income from holding the USDC stablecoin is part of the company’s subscription service revenue, which is considered less volatile than trading.

Coinbase reported in the second quarter that two-thirds of its customers engaged in what it called these “non-investment activities.” This is largely due to the staking that Coinbase Chief Operating Officer Emily Choi mentioned at the Goldman Sachs conference.

Based on the assumption that 20% to 40% of Coinbase’s Ether holdings are staked, Goldman Sachs earlier this month estimated that Coinbase had staked $250 million to $600 million in Ether alone. We expect to be able to generate revenue, partially offsetting lower trading volumes during the crypto bear market. .

JP Morgan’s Equities Team Lowers Near-Term Expectations for Coinbase’s Staking Business, Saying It’s Considered a Low-Variability Source of Earnings, But “Given Crypto Selling, Upside Is Less” rice field.

Coinbase, which holds nearly 14.5% market share, has already become a major player in Ether staking, according to data published by Dune Analytics.

However, according to the memo, the activity also comes with a “lockup risk.” Investors will not be able to withdraw their staked Ether until the Ethereum protocol implements the Shanghai upgrade set in Q2 2023.

While cryptocurrency trading volumes remain low, JP Morgan does not expect “a lot in terms of write-downs” in the third quarter based on the prices of cryptocurrencies held on its balance sheet. Hmm.

“The quarter is not over and some tokens saw Q3 lows slightly below Q2 lows,” the team added.

David Hollerith is a senior reporter at Yahoo Finance covering cryptocurrencies and stock markets. Follow him on Twitter. @DsHollers

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