Summary
- Analysts at Compass Point maintain a bearish price target of $140 for Coinbase, citing intense competition in the derivatives market.
- Coinbase has received regulatory approval to provide offshore perpetual futures through its Deribit subsidiary, but challenges from Kalshi and Binance may increase risks.
- Despite generating $50 million in revenue from perpetual futures in the first quarter, Compass Point noted potential cannibalization of its retail trading revenue.
According to Compass Point analysts, Coinbase is encountering significant challenges in the derivatives market as customers have an increasing array of options for trading perpetual futures.
In a note released on Monday, the investment bank's analysts stated that under current market conditions and with competitors aiming to capture more market share, Coinbase's initiatives to enable customers to use leverage for speculating on digital assets are unlikely to result in substantial revenue growth.
They commented, "Competition and low switching costs restrict COIN's capability to influence pricing compared to spot trading, especially among more advanced users who are likely to engage with these products," referring to perpetual futures.
At midday, the exchange's stock was down 2.6% to around $184, as reported by Yahoo Finance. Compass Point has reiterated its "Sell" rating and $140 price target for the stock.
On Friday, Coinbase announced that it had obtained regulatory approval from the CFTC to allow U.S. users to access offshore crypto perpetuals via its Deribit subsidiary, which it acquired for $2.9 billion last year as part of its aggressive expansion strategy.
On the same day, the CFTC approved Kalshi to offer perpetuals tied to Bitcoin, while the CME indicated that Bitcoin futures and options trading would now be available around the clock. Unlike traditional futures, perpetuals do not have an expiration date, enabling traders to maintain positions indefinitely, supported by periodic payments related to the underlying assets.
The analysts also pointed out that Interactive Brokers, one of the largest brokerages globally, has already incorporated the prediction market alongside crypto exchange Bullish, and both Kraken and Robinhood have plans to roll out perpetuals soon.
Furthermore, they observed indications of revenue cannibalization, as Coinbase generated $50 million in perpetuals revenue during the first quarter while retail trading revenue dropped to its lowest level since the third quarter of 2024.
As Coinbase grapples with domestic competition, Compass Point expressed concerns that future approvals from the CFTC could pose additional risks. The regulator's capacity to permit American traders to operate on platforms like Hyperliquid or offshore exchanges such as Binance represents a growing threat, according to the analysts.
"We also anticipate that leverage restrictions will limit U.S. perpetuals trading compared to offshore options," they added. "Consequently, we view the expansion of U.S. regulation as a negative influence on COIN's market share and pricing power over the long term."
The analysts speculated that the Trump family's ties to Binance, linked through World Liberty Financial's USD1 stablecoin, "could also increase the chances of U.S. access" following the exchange's $4.3 billion settlement with U.S. regulators in 2023.