Bank of America (BofA) has downgraded the shares of Coinbase, a cryptocurrency exchange platform, after the collapse of the FTX cryptocurrency exchange, while warning of contagion risks in the volatile industry.
Coinbase told its customers that the company is not exposed to FTX. However, Sam Bankman-failure Fried’s exchange’s continues to impact the whole market.
According to Yahoo! Finance, Jason Kupferberg, senior equities research analyst at Bank of America Merrill Lynch, stated in a report: “We believe Coinbase will likely face a number of fresh headwinds in the near/medium term owing to the recent demise of competitor crypto exchange FTX.” As a consequence, we drop COIN from Buy to Neutral and lower our expectations.
“What we are seeing today is a fallout from FTX that resembles the 2008 financial crisis in that it exposes weak lending practices and poor risk management,”
Alesia Haas
Jason Kupferberg, a senior analyst at BofA, said in a note, “We do not believe that COIN is a copy of FTX.” According to BofA, “less trust in the crypto ecosystem” renders the stock a risky investment. Kupferberg warned that the “contagion danger” posed by FTX might cause investors to completely leave crypto exchanges and blockchain enterprises.
New target price
BofA has decreased its target price for COIN shares from $77 to $50. The price of COIN, which is about $45 as of November 18, decreased by more than 18 percent on Friday and more than 82 percent year-to-date.
The letter listed three factors for COIN’s downgrade:
- Coinbase anticipates a decrease in retail trading activity as a result of the FTX crash.
- Traders had anticipated regulatory certainty in the cryptocurrency market by next year, but such developments are now anticipated to be delayed.
- The paper forecasts that it may take some time for crypto traders to completely comprehend the repercussions of the FTX scandal, which would further depress the market. “Contagion risk and larger repercussions of the FTX crash might persist,” the paper said, as reported by CNBC.
On November 8, Coinbase CEO Brian Armstrong moved to Twitter to reassure users and investors that the company was secure, saying that Coinbase “has no significant exposure to FTX or FTT (and no exposure to Alameda).” Armstrong’s statements did not seem to assuage market watchers as the effects of FTX’s crash extended across the cryptocurrency sector.
Poor risk management
Bank of America referenced an interview Chief Financial Officer of Coinbase Alesia Haas had with the Wall Street Journal on Wednesday.
“What we are seeing today is a fallout from FTX that resembles the 2008 financial crisis in that it exposes weak lending practices and poor risk management,” Haas said.
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