Analysts call Coinbase's ongoing regulatory battles a 'major roadblock,' say long-term outlook looks uncertain

Published Fri, May 5 20237:37 AM EDT

Despite Coinbase Global 's better-than-expected quarter , many analysts remain cautious on the crypto exchange's longer-term outlook, viewing the regulatory and legal backdrop as a major obstacle for shares. The stock traded up more than 8% in premarket trading on the news, due in part to a smaller-than-expected loss. But even with this seemingly intact near-term outlook, Wells Fargo's Jeff Cantwell warned that both the medium and long-term trajectory appears constrained, calling the regulatory backdrop a "major roadblock." COIN 1D mountain Coinbase shares pop on earnings Cantwell reiterated an underweight rating on the stock. He did raise his price target on Coinbase to $43 from $40, but that still implies downside of more than 10%. Bank of America's Jason Kupferberg, who rates the stock as underperform, said "the fundamental medium/long-term questions around COIN's core business remain." He added that, "We maintain our cautious view on COIN as we continue to think retail crypto volumes will remain weak and the regulatory overhang will linger for some time." An uncertain regulatory outlook One of the biggest concerns for analysts is the uncertain regulatory environment for the company. Earlier this year, Coinbase received a Wells notice from the Securities and Exchange Commission threatening to sue the company over potential securities violations. In an April response, the company said an enforcement action against it would "fail on the merits." Goldman Sachs analyst Will Nance said he sees few near-term catalysts for increased retail adoption in the United States, adding he has a negative outlook for the stock given the "lack of visibility" surrounding Coinbase's growth and the adverse effects from regulation. Nance has a sell rating on Coinbase shares. "We believe renewed progress on retail crypto adoption and reduced uncertainty around the U.S. regulatory backdrop is likely necessary for shares to re-rate higher," he said. Concerns with the company's staking business is also giving some analysts reason for pause. Staking is utilized by some investors to earn passive yield on their crypto holdings by tying tokens up on the network for a period of time and represents sizeable revenue opportunity for exchanges. "While earnings were meaningfully better than expected, the outlook generally doesn't seem as good," wrote JPMorgan's Kenneth Worthington. "Volumes are under further pressure in 2Q despite much higher crypto prices, USDC has declined meaningfully and changes to the staking service at Coinbase might not drive the upside we once thought." Worthington retained his neutral rating but upped his price target to $59 a share, representing about 20% upside from Thursday's close. — CNBC's Michael Bloom contributed reporting