Although it was never the only cryptocurrency exchange available for purchase or sale, Coinbase (NASDAQ:COIN) has maintained a notable position in the market for a while. It was just “Coinbase” and “everyone else” for the most part. Today, “everyone else” just grew significantly, and Coinbase suffered as a result. Because of the new player in the market, Coinbase shares are down more than 8% on Thursday afternoon.
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In fact, CME Group (NASDAQ:CME) intends to launch its own Bitcoin (BTC-USD) trading business in an effort to increase revenue from investors seeking to increase their exposure to cryptocurrency in managed funds. Given that CME Group is the biggest futures exchange platform available, Coinbase, which was keen to get a piece of the institutional Bitcoin market, may suffer a significant loss of potential business. When you add in the fact that CME Group can operate as a “regulated marketplace,” in many cases that’s all the major players will want to hear.
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This poses a significant potential risk for Coinbase. Although it is unlikely to completely undermine Coinbase’s business, it will introduce a formidable new competitor that will be challenging for Coinbase to adapt to. Indeed, Coinbase’s recent string of successes has been impressive, enabling it to become a major lender.
According to reports, Coinbase had loans totaling approximately $800 million to significant traders at the end of March. This represents a more than four-fold increase from the previous year, when the amount was only $194 million. It’s a good guess that if CME Group gets involved, some of that traffic will move away from Coinbase unless Coinbase can provide strong arguments for staying. Meanwhile, recent service interruptions won’t be helpful there.
Is Coinbase a Good Investment at This Time?
Now let’s turn our attention to Wall Street. Based on nine Buys, nine Holds, and three Sells assigned over the last three months, analysts have a Moderate Buy consensus rating on COIN stock, as shown in the graphic below. An upside potential of 21.26% is implied by the average COIN price target of $244.37 per share, following a 228.9% surge in share price over the previous year.
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