Coinbase: Decline in Crypto Trading Activity Necessitates a Conservative Outlook

Are the winter clouds gathering in the crypto sphere? While not long ago, Bitcoin and its fellow cryptocurrencies’ hot streak appeared all set to last a while, the rally appears to have lost momentum for now.

The surge’s pause could have a big impact on crypto exchange Coinbase (COIN). At least this is what a recent survey indicates to Mizuho analyst Dan Dolev.  

“Our survey of Bitcoin traders on Coinbase (COIN) reinforces our notion & recent data that 2H21 could see more muted Bitcoin trading activity, with prices remaining below peak levels. As such, we remain cautious on the company’s near- to medium-term outlook,” Dolev wrote.

Coinbase’ main revenue driver, says Dolev, is “elevated crypto retail volatility.” And after 1H21’s turbulence, the survey indicates 50% of users intend to hold on to their Bitcoin rather than trade it, which means that the coming months will possibly see volatility levels drop. Recent Coinbase volume data appears to support such a notion.

Looking at the daily trailing 10-day average volumes, the data shows trading activity is currently “trending 35-40% below peak levels.”

The drop in volume goes hand in hand with, if not a bearish, then a less exuberant outlook on where the Bitcoin price is heading, which the survey suggests has “limited near-term upside potential.”

By December, on average, the survey’s respondents put the price of 1 BTC at $42,000, implying upside of 27% from current levels. That’s a solid return but is far below previous assumptions which called for a $100,000 price per Bitcoin by the end of the year. Only 5% now see the price exceeding that figure, while 55% see Bitcoin seeing out the year lower than $40,000. In the meantime, 32% intend on adding to their BTC stack, while 17% are looking to sell theirs.

“In other words,” Dolev summed up, “The survey points to a positive up / down ratio spread of about 15% points in favor of buying.”

As far as COIN stock is concerned, Dolev recommends staying on the sidelines for now. The analyst reiterated a Neutral (i.e. Hold) rating, backed by a $225 price target. The figure suggests the shares will remain range bound for the foreseeable future. (To watch Dolev’s track record, click here)

The rest of the Street, however, appears to believe there’s plenty more upside in store. The $388.86 average price target implies one-year gains of ~76%. The stock currently has a Moderate Buy consensus rating, based on 10 Buys, 4 Holds, and 1 Sell. (See Coinbase stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.