When Bitcoin’s price drops, it seems to influence the trading patterns on Coinbase (COIN), which see a drop in volume too. However, Mizuho Securities Dan Dolev has noticed there may be another pattern playing out.
“Common sense tells us that changes in Bitcoin prices can influence trading behavior on the COIN platform,” the analyst said. “But is the opposite true too at times? Said differently: could changes in COIN’s market share of Bitcoin prove to be a potential leading indicator for Bitcoin prices?”
Dolev has looked into this and has calculated the number of Bitcoins traded on Coinbase times the average daily price of Bitcoin to gauge Coinbase’s market share as a percentage of total global Bitcoin volumes. The results might shed light on a “potential pattern between changes in Coinbase’ Bitcoin market share vs. changes to Bitcoin’s price.”
It seems that in recent months, both the upward and downward trajectory in Coinbase’ market share of Bitcoin volume preceded changes in the price of Bitcoin.
For instance, Coinbase’s share of BTC volume started to rise in late 2020, followed by a surge in Bitcoin’s price in early 2021. Likewise, in the spring, Coinbase started losing market share and what followed was a sharp drop in Bitcoin’s price, the ‘mini-crypto winter’ of the following months.
“Where are we now, then? “While COIN’s market share been on the rise, Bitcoin has declined in recent weeks,” Dolev notes, before adding, “Whether the pattern seen thus far in 2021 continue remains to be seen.”
Bitcoin volumes on Coinbase have gained market share in Q4, marking a turnaround of the downward trend exhibited in Q2 and Q3. As such, Dolev expects a “strong quarter,” although the analyst adds that it is “likely already fully reflected in consensus expectations.”
In fact, overall, the analyst remains concerned of Coinbase’s “ongoing take rate contraction” with the majority of the exchange’s revenue still based on trading commissions, compared to rivals such as the Cash App and Robinhood which “use crypto trading products as engagement tools.”
So, what does it all mean for investors? Dolev rates COIN a Neutral (i.e. Hold) along with a $300 price target. Nevertheless, there’s upside of ~23% from current levels. (To watch Dolev’s track record, click here)
Dolev, however, is of a minority on Wall Street. One other analyst joins him on the sidelines, and one other suggests to Sell, but all are dwarfed by 13 analysts saying Buy, resulting in the stock’s Strong Buy consensus rating. Moreover, the average price target is a confident one; at $398, the analysts project 12-month upside of 57%. (See COIN stock analysis on TipRanks)
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