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Coinbase Boost from Higher Interest Rates is ‘Highly Underappreciated’

Oppenheimer analyst reiterates bullish stance on crypto trading platform, and sees potential upside for stock of more than 40%.

Coinbase Global Inc (NASDAQ: COIN) stock has potential to rally more than 40% from current levels, according to Oppenheimer analyst Owen Lau, who said the potential benefits to the cryptocurrency platform from higher interest rates are “highly underappreciated.”

Lau reiterated the outperform rating he’s had on the stock since May 2021, just after Coinbase went public. He kept his price target at $107, which implied 43.6% upside from Tuesday’s closing price of $74.50, saying he believed the stock is currently trading at a “depressed multiple.”

“It is easier to associate Coinbase with trading than with interest income, but this perception could change in the near term,” Lau wrote in a note to clients. “While rising interest rates have negatively impacted its trading revenue, they will likely benefit interest income.”

The stock COIN, -2.05% slumped 2.9% in premarket trading Wednesday, after soaring 20.3% over the past three sessions through Tuesday. Bitcoin BTCUSD, 0.72% dropped 1.6% early Wednesday, after gaining 4.1% the past three days.

Coinbase’s quarterly results have missed expectations the past two quarters, as trading volume declined 7.8% from a year ago in the first quarter, then tumbled 53.0% in the second quarter.

Meanwhile, net interest income increased 218% in the first quarter to represent 0.9% of total revenue, then soared 400% to represent 4.0% of total second-quarter revenue. The Federal Reserve had raised its target range for overnight rates from zero to 0.25% at the end of 2021 to 1.50% to 1.75% through the end of June, and has raised it to 3.00% to 3.25% since then.

Oppenheimer’s Lau said there are three parts of Coinbase’s business that can get a boost from rising rates: 1) the USC Coin stablecoin (USDC); 2) customer custodial cash; and 3) corporate cash.

“Our analysis into Circle [stablecoin] and USDC shows that the full benefit from rates for Coinbase has yet to come, and Coinbase is uniquely positioned to benefit from this growing stablecoin ecosystem,” Lau wrote.

Coinbase’s stock has plunged 69.0% year to date through Tuesday, while bitcoin has sunk 61.3% and the S&P 500 index SPX, -0.20% has lost 12.8%.

Source: Coinbase Boost from Higher Interest Rates is ‘Highly Underappreciated’.