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Coinbase already faces headwinds from a slowdown in crypto trading volumes.
Michael Nagle/Bloomberg
Coinbase Global
appears to be losing market share at an accelerating pace, adding onto other pressures facing the cryptocurrency exchange, according to new research.
Analysis shows that Coinbase’s (ticker: COIN) share of volume traded among prominent crypto exchanges is rapidly falling, a team led by Dan Dolev at Mizuho Securities said in a report on Tuesday.
Coinbase captured 11% of the trading volume in February among competitors including Binance, Crypto.com, FTX, and Kraken, Mizuho found — but that fell to 10% in March and 8% in April.
“The rapid ascent of competing exchanges like Crypto.com as well as others makes us increasingly worried about looming retail pricing pressure and the long-term sustainability of Coinbase’s business model,” Dolev’s team said.
Coinbase may have lost even more market share had the group not added so many new tokens in the fourth quarter, they added. Almost 40% of the 95 new cryptos added to the exchange in 2021 came in the final three months of the year.
The company faces an uphill battle from competitors flush with cash and ready to spend.
Dolev pointed to Crypto.com, which only recently began operating in the U.S. but already has volumes on par with Coinbase. The group has splashed out on a significant marketing campaign that has included Super Bowl ads and buying the naming rights for the L.A. Lakers’ home stadium, previously the Staples Center and now the Crypto.com Arena.
“We worry that heightened competition will only increase the need to further boost marketing spend, which we believe is likely to continue to weigh on [Coinbase’s profit] beyond 2022,” the team at Mizuho said.
Pressures from competition come as Coinbase already faces headwinds from a slowdown in crypto trading volumes, led by retail investors who pay higher fees than institutional clients.
Christopher Brendler, an analyst at investment bank D. A. Davidson, estimated earlier this month that Coinbase’s volume in the first quarter of 2022 totalled $314 billion, down 40% from the previous quarter and led by a decline in retail trading. Brendler’s estimate, based on exchange data, is 20% below the current consensus.
Moreover, as Barron’s has reported, Coinbase is already spending heavily to build out its non-fungible token (NFT) business at a time when that segment is also slowing down.
“We question the strategic rationale of chasing NFTs … especially as the NFT hype seems to wane,” Dolev’s team at Mizuho said earlier this month. They estimate that Coinbase may have to spend up to $300 million to launch its NFT platform in 2022, which would contribute to an overall 130% rise in annual operating expenses.
Mizuho rates Coinbase at Neutral with a target price of $150, which was slashed on Tuesday from $190. The group had a price target on the stock of $220 as recently as April 4.
Shares in Coinbase rose 1.7% on Tuesday but have lost 11% in the last five days alone. The stock has tumbled 34% so far this year and was last trading around $156.50.
Write to Jack Denton at jack.denton@dowjones.com