What happened
Shares of the large crypto exchange Coinbase (COIN -3.24%) traded more than 8% down as of 12:45 a.m. ET today, as stocks sold off today and after an analyst initiated coverage on the stock.
So what
Wells Fargo analyst Jeff Cantwell initiated coverage of Coinbase with an underweight rating, largely on the belief that other large competitors like Binance and FTX will prove to be insurmountable competition.
"We see its early mover advantages gradually being eroded away as the competition increasingly mimics the COIN ecosystem," Cantwell said in a research note.
Binance recently decided to eliminate trading fees on certain Bitcoin transactions, which will continue to pressure the fees Coinbase charges on transactions, currently the main way the company makes money. Coinbase has already seen its trading fees compress, and more compression is expected as the environment gets more competitive.
Coinbase has sought to diversify its revenue by offering more services to institutional investors and by rolling out a subscription offering called Coinbase One, which eliminates trading fees, provides 24/7 phone support, and offers $1 million dollar account protection.
The world's largest asset manager, BlackRock, also recently selected Coinbase to provide institutional clients on one of its investment management platforms with direct access to crypto, launching with Bitcoin.
Now what
Coinbase certainly will have its hands full with growing competition as it works to diversify its revenue away from mainly retail transaction fees.
But the company still has a big presence in the crypto retail trading arena and is aware of the challenges that persist. Success is no guarantee but I think the company will still have a solid role to play, which is why I would rate the stock as a hold right now.
