U.S. retail investors are at the heart of Coinbase’s business.
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The Bitcoin rally is missing a major element that has fueled previous surges: retail investors. For the rally to keep going, they may have to come back. Coinbase stock tells the story.
Retail investors keep flocking into
Coinbase Global,
pushing shares up 3% in early trading Tuesday to around $146. The stock is now up 312% for the year, a stunning revival for the leading U.S. crypto brokerage.
Yet while investors have rekindled their love for Coinbase, they seem to be less enamored of
Bitcoin
itself, at least in the U.S., where retail trading volumes and interest in crypto still appear relatively muted. A slew of technical factors—including the wipeout of overleveraged short positions—appears to have driven the rally. Volumes on U.S. exchanges have picked up, but still remain relatively depressed.
As Needham analyst John Todaro points out, there are signs of indifference among U.S. investors.
“Retail crypto engagement is considerably lower than in prior years and despite the recent price gains, has been fairly muted,” he wrote in a note on Tuesday. “We have found that the best indicators for where crypto and Coinbase are in the cycle is based on a scale ranging from retail disinterest to euphoria. Today, retail interest is closer to disinterest.”
Other data point to similar conclusions; Coinbase is ranking historically low in app stores, which has been a helpful signal of retail participation, noted Todaro. The broker’s app ranks 24th among finance apps across platforms, up only slightly from 28th in September and far below the number-one spot in October 2021, when Bitcoin was marching to a record high.
Moreover, Todaro noted, Google search trends show the term “crypto” is accruing the same interest right now as it was in July, during the depths of a prolonged trading slump, and 50% lower than the 2022 average.
The bull case for Coinbase—and crypto more broadly—is that rising Bitcoin prices will lure back the retail crowd, pushing up both trading volumes and related fees for the brokerage.
Based on historical crypto cycles—fueled by “fear of missing out”—that is quite possible. And Wall Street is warming up to the idea. Needham raised its price target on Coinbase stock to $160 from $120, maintaining a Buy rating. Even longtime Coinbase bear Dan Dolev, of Mizuho Securities, has relented a bit, raising his price target on the stock to $35 from $31 last week though keeping his Underperform rating.
“While Coinbase’s share of industry volumes failed to improve in the second half of November, activity has meaningfully improved vs. September and October levels,” Dolev wrote. “This is not idiosyncratic to Coinbase, but rather an overall upward trend in volumes likely due to Bitcoin ETF anticipation and hope.”
Several other analysts raised their targets on Coinbase recently too, according to FactSet, though the average target is just $88, well below recent prices. The stock also gets an average Hold rating.
Wall Street, it appears, was caught off guard by Bitcoin’s bounce this year and its effect on Coinbase’s stock. Retail traders will now have to do their part to keep the rally going.
Write to Jack Denton at [email protected]
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