In a recent report, British banking giant Barclays has upgraded both Coinbase (COIN) and Robinhood (HOOD) to equal weight from underweight, citing improved business models and positive developments in the companies’ financial outlook.
Coinbase: A Friendlier Regulatory Environment Ahead?
Coinbase, in particular, could benefit from a more favorable regulatory environment following the presidential election in November. As both presidential candidates have taken an increasingly friendly stance towards the digital asset industry, Coinbase may see a boost in its operations. The approval of several spot crypto exchange-traded funds (ETFs) by regulators also bodes well for the company.
Barclays’ Analyst Commends Coinbase’s Resilience
According to Barclays analyst Benjamin Budish, both companies have "matured meaningfully" due to their product expansion and more positive financial outlook. Coinbase has been resilient in the face of industry challenges, particularly following the collapse of FTX and other major crypto companies in 2022 and 2023.
Budish applauds Coinbase for keeping costs low, despite increased activity in 2024. Management’s disciplined approach to hiring has allowed the company to enjoy more incremental margin from its leverage. The analyst also notes that Coinbase’s increasingly diverse sources of income are a positive development.
Coinbase’s Diversification Efforts
While trading fees and interest income still make up the majority of Coinbase’s revenue, other areas of the business have started to contribute meaningfully, including:
- Blockchain rewards: Coinbase has seen an increase in revenue from its blockchain rewards program.
- Custody revenues: The company has expanded its custody services, offering secure storage solutions for digital assets.
- Other transaction fees: Coinbase’s other transaction fees, such as those related to staking and lending, have also become a significant contributor to the company’s revenue.
Uncertainty Remains in the Space
While many factors seem to be moving in the right direction for Coinbase, there are still uncertainties in the space. These include:
- Broader macroeconomic environment: The current economic climate poses risks for the crypto industry as a whole.
- Regulatory unclarity: The Securities and Exchange Commission’s (SEC) suit against Coinbase has yet to be resolved, adding uncertainty to the company’s operations.
Robinhood: Similar Positive Developments
Barclays also sees positive developments in Robinhood’s business model, which could lead to future upside. These include:
- New products: Robinhood has introduced new products and services, expanding its offerings to customers.
- Expansion into the UK and Europe: The company is increasing its presence in these regions, providing more opportunities for growth.
- Pending acquisition of Bitstamp: Robinhood’s planned acquisition of Bitstamp could bring in new customers and revenue streams.
Barclays’ Analysts See a More Balanced Risk/Reward
The analysts at Barclays see a more balanced risk/reward for both Coinbase and Robinhood, citing the improving environment, positive financial outlook, and diversification efforts. The company’s stocks opened higher on Friday but later dropped over 3% as bitcoin (BTC) and the broader crypto market index CoinDesk 20 fell.
Conclusion
Barclays’ upgrade of Coinbase and Robinhood to equal weight from underweight reflects the analysts’ positive view of the companies’ business models. While there are still uncertainties in the space, the companies’ improving financial outlooks and diversification efforts make them attractive investment opportunities.
