U.S. investment research firm says Coinbase is overvalued

by Jonathan Adams

The company’s transaction revenue for Q2, while impressive, are not good enough to justify the company’s valuation of around $56 billion, according to New Constructs’ CEO David Trainer

Despite Coinbase beating analysts’ expectations on transaction revenue Tuesday, a U.S. investment research firm still thinks the biggest U.S. crypto exchange is overvalued.

The exchange, the largest in the U.S. by trading volume, posted $1.9 billion in transaction revenue for Q2, exceeding expectations of around $1.57 billion, CoinDesk reported.

Though according to Nashville-based firm New Constructs’ CEO David Trainer, the results, while impressive, are not good enough to justify the company’s very expensive valuation of around $56 billion.

Coinbase will likely not be able to sustain blowout earnings going forward thanks to rising competition in the cryptocurrency trading space, said Trainer. As such, New Constructs expects the exchange’s margins and future revenue growth rates to fall as competition from the likes of Binance, Gemini, and Kraken eat into its business.

It isn’t the first time the research firm has criticized Coinbase’s value. In May, the company predicted that exchange’s share price would drop to $100. Coinbase’s share price did drop to an all-time low of $208 on May 19, but has managed to claw back losses and is currently trading around $269 per share.

Still, amid the backdrop of regulatory developments and U.S. politicians wanting their slice of the “crypto trading pie” in the form of taxes, Trainer argues Coinbase investors should be wary.

At current levels, Coinbase’s stock remains terribly overvalued, said Trainer, who points to a need for Coinbase to attain higher revenue than established rivals like Nasdaq and Intercontinental Exchange (ICE).

The CEO also points to Coinbase’s dependency on the spot price of bitcoin for its transaction revenue growth, noting that as bitcoin prices move up or down, so too does the exchange’s share price.

Indeed, as a result of bitcoin’s shaky performance during the H1 2021, the exchange has warned that monthly transacting users and trading volume would be lower in Q3 compared to Q2.

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