Coinbase expands offshore. What it means for the stock.
Coinbase Global is expanding overseas as its core US business comes under increased regulatory pressure. The share may still be about Bitcoin.
In a blog post on Wednesday, the company described plans to push into countries such as Brazil, Singapore and Canada. The company also said it had obtained a license to operate in Bermuda and was “doubling down” in Europe.
The company has said for some time that it doesn’t have the regulatory clarity it needs in the U.S. and could move overseas if it doesn’t emerge in a number of years, CEO Brian Armstrong said this week.
However, moving offshore would not solve the company’s legal problems in the United States. FTX made its home in the Bahamas before it collapsed, and other offshore exchanges have been under US regulatory scrutiny.
Coinbase (ticker: COIN) disclosed last month that the Securities and Exchange Commission had sent it a so-called Wells notice, a warning that the agency could sue the exchange. Coinbase said it was confident in the legality of its assets and services.
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Breaking through in non-US markets will not be easy. Legions of offshore exchanges are already making markets in crypto and offering trading services as they jockey for position amid rapidly changing market dynamics.
The world’s largest crypto exchange, Binance, is an offshore entity with a giant futures business. Nevertheless, it has lost market share in the “spot” market in recent weeks after dropping its duty-free trading offer. Others are picking up the pieces, with Deribit, which dominates as a venue for trading crypto options, revealing this week that it was launching fee-free trading for select tokens.
Coinbase could enter the fray on two fronts: in the battle for global crypto traders and capitalizing on the higher-margin business of derivatives trading, which a Fortune report indicates it may be about to launch.
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Coinbase declined to comment.
Some analysts liked the idea of the company moving into derivatives.
“A derivatives platform would enhance Coinbase’s competitive position overseas, although competition is intense,” Benjamin Budish, an analyst at Barclays, wrote in a Thursday note. “Given our expectation that a futures offering would be more lucrative on a per-trade basis compared to the spot market, we would assume that if Coinbase were to launch such an exchange, the revenue increase could be quite meaningful.”
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Barclays rates Coinbase at Equal Weight/Positive with a target of $74.
None of this has moved the needle on Coinbase’s stock. Shares fell 2.7% in Thursday afternoon trading to around $63. However, shares are up 79% this year, getting a boost from the big rally in Bitcoin and other cryptos.
For now, the stock looks more like a derivatives bet on Bitcoin than a bet on profits from the derivatives themselves.
Write to Jack Denton at [email protected]
