‘The Trump Thing Actually Hurts Crypto and Hurts Bitcoin Because Now You’re Adding Political Risk’: Mizuho Analyst

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As a seasoned financial analyst with over two decades of experience in the industry, I have witnessed the evolution of various markets and trends, including the recent surge in interest towards cryptocurrencies and fintech companies. While some may view the increasing mainstream acceptance of crypto assets as a bullish sign, my perspective is shaped by a careful analysis of specific companies’ financial health and competitive landscapes.

29th July saw Dan Dolev, a seasoned analyst at Mizuho, appear on CNBC’s “The Exchange” to offer his insights about the transforming cryptocurrency market and the possible repercussions if Coinbase were to be incorporated into the S&P 500.

Dolev started by recognizing the growing acceptance of cryptocurrencies into mainstream finance. He pointed out that the financial sector is gradually adapting to crypto assets, as indicated by the rising political attention they are receiving. However, this widespread adoption doesn’t automatically mean positive prospects for every company in the crypto sphere, such as Coinbase.

As a financial analyst, I’ve observed a surge of enthusiasm towards cryptocurrencies, with Coinbase being a prominent player in this space. However, I’ve chosen to adopt a cautious perspective regarding its prospects. Several key factors underpin my bearish outlook on Coinbase:

  1. Revenue Dependence on Bitcoin: “Only about 20% of Coinbase’s revenue is derived from Bitcoin transactions,” Dolev pointed out. The remaining revenue comes from other sources that aren’t performing as well, which poses a risk to the company’s overall financial health.
  2. Declining Take Rates: Dolev predicted that take rates, the fees Coinbase charges for transactions, would eventually decline. “Take rates are eventually going to come down,” he emphasized, indicating that this decline could further strain Coinbase’s revenue, especially as competition intensifies.
  3. ETFs Impact: The successful launch of Bitcoin ETFs has drawn significant assets, but Coinbase earns thinner margins on ETFs compared to spot trading. “Coinbase makes a lot less money on the ETFs than they make on spot,” Dolev explained. As ETFs become more popular, Coinbase’s high-revenue spot trading might diminish, leading to reduced profitability.

Dolev made it clear that although Coinbase has long been favored by institutional investors, its market share is shrinking. He explained that Coinbase’s percentage of global crypto trading volumes in their respective categories decreased in July compared to previous months. Newcomers like Robinhood are seizing a larger portion of the global cryptocurrency trading volume. This trend suggests that Coinbase’s monopoly may be threatened as more publicly-traded crypto exchanges emerge, providing investors with various options. Dolev added, “There is no shortage of exchanges dealing in Bitcoin,” implying that competition will intensify as more players join the market.

1. The conversation delved into the potential political hazards linked to cryptocurrencies, with Dolev expressing concerns about political interventions like the suggestion of a Bitcoin strategic reserve by certain politicians. He believes that such actions create uncertainty and risk in the crypto market. “In fact, I think the involvement of politicians, specifically Trump’s influence, negatively impacts crypto and Bitcoin due to the introduction of political risk,” he stated emphatically. He underscored the importance of keeping Bitcoin and Coinbase out of political discussions for their long-term stability and growth.

Regarding the field of financial technology, or fintech, Dolev conveyed a positive outlook towards Buy Now Pay Later (BNPL) services. Notably, he pointed to businesses such as Affirm and SoFi as key players in this sector.

  1. Affirm: Dolev argued that the current economic environment is highly favorable for BNPL platforms like Affirm. “There’s no better time in investing in buy now, pay later than right now,” he stated. With interest rates potentially coming down, Affirm’s profitability could soar due to lower borrowing costs. “Affirm has already proven to you that they’re earning a lot of money and they can actually be profitable,” he noted. He added that Affirm has mastered underwriting, making it a robust player in the market.
  2. Sofi: Similar to Affirm, Sofi is well-positioned to capitalize on the BNPL trend. Dolev’s research indicated that Sofi could unleash significant growth in personal loans if delinquencies decrease and interest rates drop. “We’ve done work that shows that they can unleash 30% growth in personal loans this year if they wanted to,” he highlighted. This potential for growth makes Sofi an attractive investment.

Currently, Bitcoin is priced at $67,404 and has decreased by 1.2% over the last 24 hours. In contrast, Coinbase shares are valued around $236.54, representing a 2.63% decline for the day.

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2024-07-29 22:33