Coinbase Gets First Sell Rating On Competition Concerns

Raymond James analyst Patrick O'Shaughnessy launched coverage of Coinbase (COIN) with a sell-equivalent rating, arguing that while cryptocurrency is "a great unknown", fee compression is not. As there are few barriers to entry within the space, and Coinbase's current perceived security is not a durable competitive advantage in the long-run, the analyst expects Coinbase's premium pricing to eventually face meaningful pressure, limiting potential growth in transaction revenues that account for about 85%-plus of the company's revenue base.

COMPETITION, FEE COMPRESSION COMING: Raymond James analyst Patrick O'Shaughnessy initiated coverage of Coinbase with an Underperform rating. Though Coinbase currently enjoys "substantial momentum as the preeminent trading platform for cryptocurrencies in the U.S." and is an established leader in the space, the vast majority of its revenues come from trading commissions, O'Shaughnessy noted. The analyst doesn't see Coinbase having a structural barrier to entry and says that "over and over again history has shown that brokerage and exchanges see excess profits competed away unless there is a structural barrier to entry." He expects significant pricing degradation over time for Coinbase.

As there are few barriers to entry within the space, and Coinbase's current perceived security is not a durable competitive advantage in the long-run, O'Shaughnessy expects Coinbase's premium pricing to eventually face meaningful pressure in the coming years, limiting potential growth in transaction revenues which account for about 85%-plus of the company's revenue base.

SPEAKING OF COMPETITION: When asked about cryptocurrency plans at the Piper Sandler Global Exchange and FinTech Conference on Wednesday morning, Interactive Brokers (IBKR) Chairman and CEO Thomas Peterffy said that "customers certainly are asking for it, and we expect to be ready to offer it to them by the end of the summer." "As to hurdles […] How do you make it 100% sure that no one will steal their coins in spite of the fact that they are untraceable? We will find out more about this when we open for business at the end of the summer," he added. "We have done some work. It's not a huge amount of work, but we have been working on it for some time now. And as I said, we expect to be done by the end of the summer."

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