Buy Coinbase on the dip for a long-term opportunity on the crypto economy, Canaccord says

Published Wed, Jun 16 202110:18 AM EDTUpdated Wed, Jun 16 202111:21 AM EDT

Coinbase's price may fluctuate alongside the value of bitcoin in the short term, but Canaccord is betting on the future of blockchain technology and initiating coverage of the crypto exchange as a buy. The largest U.S. cryptocurrency exchange's stock, which was trading above $232 on Wednesday morning, made its public debut in mid-April and fell sharply with the price of bitcoin in late May. Bitcoin is currently trading around $39,000 following a roller-coaster month of trading after its price drop almost a month ago . Coinbase's revenue is largely driven by trading fees, 81% of which come from retail trading and 5% from institutional trading, according to Canaccord. It has the highest trading fees across crypto exchanges, the bank found. Still, Canaccord said it's confident Coinbase's business will ultimately expand beyond retail trading and into emerging opportunities for the blockchain — which could include supporting new protocols beyond bitcoin and ethereum, decentralized finance and cloud solutions — and that crypto exchange will be a "super on-ramp" into that new world. Canaccord set its one-year price target on the stock at $285, which is 12 times its 2022 enterprise value-to-sales estimate. Enterprise value-to-sales is a ratio that measures a firm's value versus its sales revenue. "Market share and technology leaders that leverage their positions to drive innovation via creating new customer behaviors present some of most compelling, long-term value propositions in the market," the investment firm said. "Although we will see ongoing volatility, we don't think that comparing the longer-term potential of the blockchain and digital assets to what we have seen in ecommerce is off the mark." The analysts noted that Coinbase shares are likely to see headwinds in the short term, based on crypto spot price volatility so far in June. "If we are in a bitcoin holding pattern here for a while, COIN could likely see sequentially weaker financial performance," they said. Still, "we remain biased to the upside on bitcoin medium term and believe that resilience and elegance in the blockchain provide a great foundation for the entirety of digital assets from here," the analysts wrote. Canaccord's analysts highlighted bitcoin's increasingly vertical supply curve — that is, the fact that quantities are limited, regardless of how much investors are willing to pay — as well as institutional interest in digital assets, comparative valuation to other stores of value, and "importantly what we view as an inevitable U.S. ETF."

Monitors display Coinbase signage during the company's initial public offering at the Nasdaq MarketSite in New York on April 14, 2021.

Michael Nagle | Bloomberg | Getty Images

The largest U.S. cryptocurrency exchange's stock, which was trading above $232 on Wednesday morning, made its public debut in mid-April and fell sharply with the price of bitcoin in late May. Bitcoin is currently trading around $39,000 following a roller-coaster month of trading after its price drop almost a month ago.

Coinbase's revenue is largely driven by trading fees, 81% of which come from retail trading and 5% from institutional trading, according to Canaccord. It has the highest trading fees across crypto exchanges, the bank found.

Still, Canaccord said it's confident Coinbase's business will ultimately expand beyond retail trading and into emerging opportunities for the blockchain — which could include supporting new protocols beyond bitcoin and ethereum, decentralized finance and cloud solutions — and that crypto exchange will be a "super on-ramp" into that new world.