Coinbase (COIN) Stock Drops Following JPMorgan’s Downgrade to Underweight Due to Lackluster Bitcoin ETF Hopes

In its recent analysis, JPMorgan has advised caution regarding the cryptocurrency markets, citing the potential for last year’s bullish driver—the debut of physical Bitcoin (BTC) ETFs—to possibly lead to investor disenchantment in 2024. Consequently, the firm downgraded its position on the American trading platform Coinbase (COIN) to underweight on Monday as stated in their latest report.

JPMorgan shifted its recommendation for the stock from neutral to underweight while maintaining a price target of $80. In response, Coinbase’s stock dropped by 4.1% to $122.90 during premarket trading. With the exchange having experienced a surge of 390% the previous year, the coming year, 2024, is projected to pose more significant challenges despite the platform’s achievements in various key areas, according to the bank.

“Though Coinbase’s leadership as a prominent U.S. marketplace in the crypto domain and its renown in worldwide cryptocurrency trade and investment persist, the previously motivating factor of bitcoin ETFs which heralded a thaw in the crypto winter may underwhelm market participants,” predict analysts including Kenneth Worthington.

The endorsement of spot bitcoin ETFs by the Securities and Exchange Commission (SEC) the previous month had been anticipated to mark the dawn of a new epoch for cryptocurrencies as institutional funds prepared to enter the arena. These vehicles provide a means for investors, who were previously barred from directly holding digital currencies, to venture into the sector by other means.

“The surge in anticipation for a bitcoin ETF, alongside the expected influxes into the crypto sphere that would ensue, could see any letdown in ETF fund flows puncture the bubble of enthusiasm that largely propelled the crypto rally in the latter half of 2023, especially post-October,” alerts the report.

Observing that bitcoin’s valuation is currently feeling the strain, having tumbled below the $40,000 mark, JPMorgan presumes that “cryptocurrency ETF fervor could further subside, which would in turn drag down token prices, shrink trading volumes, and diminish subsidiary revenue chances” for entities such as Coinbase.

For forthcoming spot ether (ETH) ETFs to be sanctioned, it is anticipated that Coinbase would maintain analogous roles in custody, oversight, and trading activities, the report added.

Post-validation of spot ETFs, the principal cryptocurrency has seen a downturn in value, reaching a two-month nadir on Tuesday. The bankruptcy remnants of the now defunct exchange FTX’s estate liquidated roughly $2 billion worth of the Grayscale Bitcoin Trust (GBTC), following its transformation into an ETF, exerting additional downward pressure on Bitcoin.

UPDATE (Jan. 23, 15:16 UTC): Refined verbiage in the initial two paragraphs to clarify Coinbase’s downgrade to underweight status.