Interest income from Circle’s USD Coin (USDC) has become increasingly important for crypto exchange Coinbase (COIN), accounting for 10%-15% of third quarter revenue, amid deteriorating sentiment and trading volumes, Mizuho said in a research report Friday.
Mizuho expects depressed crypto trading volumes for 2023 – 2024, resulting in lower revenue for the exchange. The bank cut its rating on Coinbase shares to underperform from neutral with a new price target of $30 from $42. Coinbase shares fell 2.8% to $41.60 in premarket trading.
Any potential changes to Coinbase’s USDC income from Circle could have an “amplified adverse effect on its profitability,” the report said.
Coinbase, which is the co-founder of USDC, on Friday waived off conversion fees for users that wish to switch to USDC from Tether’s USDT.
Irrespective of interest income risks, the bank’s analysis shows that 2023 revenue estimates are likely overly optimistic.
Coinbase CEO Brian Armstrong said on Wednesday that the company’s revenue will be half or less what it was last year as the exchange struggles amid sharp drops in cryptocurrency prices and continuing ripple effects from multiple bankruptcies this year, including the recent collapse of rival exchange FTX.
Coinbase shares have fallen over 80% this year and the stock is one of the worst-performing on the Nasdaq index.
Read more: Crypto Exchange Coinbase Asks Users to Switch USDT for USDC
