Coinbase Global scores new Buy rating from Benchmark

I. Benchmark Rating Criteria Explained

Benchmark’s equity rating system defines a "Buy" as a stock expected to outperform its relevant market benchmark (e.g., S&P 500 or Nasdaq Composite for U.S. equities) by over 20% within 6-12 months. This rating evaluates a company’s fundamentals, industry trends, and market conditions, emphasizing long-term growth potential in key business areas.

II. Core Drivers of Coinbase’s "Buy" Rating: Stablecoin Momentum

1. Strategic Expansion of USDC Partnerships

• Revenue Model: Coinbase’s collaboration with Circle, the issuer of USDC, deepened after acquiring a stake in 2022. The two companies share interest income generated from USDC’s reserve assets, which contributed significantly to Coinbase’s revenue growth.
• Market Dominance: USDC now operates across multiple blockchain networks (e.g., Polygon, Base), expanding its use in DeFi and cross-border payments. Its market share has grown steadily, positioning it as the second-largest stablecoin globally.
• Regulatory Compliance: Proactive alignment with regulations like the EU’s MiCA framework has driven adoption of USDC in regulated markets, as competitors face stricter scrutiny.

2. Base Network: Fueling Layer 2 Growth

• Transaction Volume and Revenue: Base, Coinbase’s Ethereum Layer 2 network, has become a leading platform for decentralized transactions, generating substantial fee-based revenue through high activity and ecosystem expansion.
• Stablecoin Integration: Plans to support multi-currency stablecoins aim to attract global users, creating a synergistic ecosystem combining stablecoins and DeFi applications.

3. Valuation Upside from Stablecoins

Analysts argue that Coinbase’s stablecoin business is undervalued. Given the low-risk revenue model (interest from reserves) and market potential, this segment could account for nearly half of the company’s total valuation.

III. Broader Stablecoin Market Trends

1. Rapid Market Expansion: The stablecoin sector has seen explosive growth in both market capitalization and transaction volume, driven by adoption in cross-border payments and institutional asset management.
2. Regulatory Tailwinds: Clearer frameworks like MiCA and U.S. stablecoin legislation are accelerating industry consolidation, favoring compliant players like Coinbase and Circle.

IV. Additional Growth Catalysts

1. Recovery in Trading Revenue: Improved crypto market conditions have boosted transaction fees, particularly from institutional clients. Custody services for Bitcoin ETFs further enhance recurring income.
2. Product Innovation:
   • BTC-Backed Loans: Enable users to borrow against Bitcoin holdings without selling, bridging crypto and traditional finance.
   • Staking Services: Despite volatility, staking remains a steady revenue stream, showcasing Coinbase’s diversified offerings.

V. Risks and Challenges

1. Regulatory Uncertainty: Ongoing scrutiny from U.S. regulators could impact new product launches (e.g., tokenized securities).
2. Competitive Pressures: Traditional platforms entering the stablecoin space may erode market share.
3. Market Cyclicality: Crypto price fluctuations remain a risk, necessitating reliance on stablecoins and subscription services for stability.

VI. Summary and Outlook

Benchmark’s "Buy" rating underscores confidence in Coinbase’s leadership in stablecoins, Base network growth, and regulatory advantages. Key expectations include:

• Short-Term: Outperformance driven by USDC adoption and Base’s ecosystem momentum.
• Long-Term: Potential to become a cornerstone of crypto financial infrastructure, akin to "Visa for the digital asset era," if stablecoins reach mainstream scale.

In conclusion, Coinbase’s focus on stablecoins and infrastructure innovation positions it as a critical player in reshaping global financial systems, justifying Benchmark’s bullish stance.