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Coinbase has 'plenty of cash' to survive this Crypto Winter: Analyst

·Senior Reporter
·2-min read

Coinbase's (COIN) second quarter results earlier this week missed Wall Street estimates, but some analysts see signs the company's balance sheet leaves it well positioned to survive a prolonged "Crypto Winter."

In addition to posting $1.1 billion net loss — with $453 million coming from a decline in crypto assets held on Coinbase's balance sheet — the company missed Wall Street’s expectations on revenue, trading volume, and assets held on the platform.

Between the crypto sector’s liquidity crisis in June, and with 8 mentions of “Crypto Winter” during its Tuesday second quarter earnings call, the fate of the first large cap crypto stock hinges on whether the exchange holds enough cash reserves, according to Lisa Ellis, partner with MoffettNathanson.

In a note following Q2 earnings, Ellis pointed out that though Coinbase reported $5.68 billion in cash and cash equivalents at the end of the quarter, it also holds an additional $500 million in Circle’s stablecoin, USDC, pushing cash resources above its first quarter level to $6.2 billion.

Employees of Coinbase Global Inc, the biggest U.S. cryptocurrency exchange, watch as their listing is displayed on the Nasdaq MarketSite jumbotron at Times Square in New York, U.S., April 14, 2021. REUTERS/Shannon Stapleton
Employees of Coinbase Global Inc, the biggest U.S. cryptocurrency exchange, watch as their listing is displayed on the Nasdaq MarketSite jumbotron at Times Square in New York, U.S., April 14, 2021. REUTERS/Shannon Stapleton

Coinbase has “no real urgency or concern around liquidity,” Ellis explained to Yahoo Finance.

Looking at the exchange’s cash burn-rate in a research note follow the company’s Q2 earnings call, Ellis sees the company's burn falling to around $200 million per quarter after burning through $1 billion in the first half of 2022.

“The implication of that is even if this crypto winter persists for another six quarters, which would be typical, that they last for a couple of years, they’ll still be sitting at around $5 billion in cash,” Ellis added.

Chris Brendler, a senior analyst with investment banking firm D.A. Davidson, is also showing more confidence in COIN following second quarter results.

Eyeing the exchange's profitability from retail trading fees — the company's cut of trades rose to 1.34% against expectations for 1.24% — Brendler said in a Wednesday note the biggest positive in Coinbase’s results is that “casual retail activity is holding up better than we would have thought.”

Admitting any “near-term outlook remains murky” for COIN, Brendler raised his price target on shares from $90 to $100. The firm expects Coinbase’s lifeblood profit line — average monthly revenue per active user — to bottom during the third quarter.

“The recent rally increases our confidence in an eventual recovery once the Fed truly pivots. Until then, COIN is well positioned to withstand the winter and emerge stronger (and leaner) on the other side,” Brendler added.

Coinbase shares were down over 5% early Thursday, trading below $89.

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