JPMorgan analyst Kenneth Worthington says digital currency exchanges like Coinbase will end up being a significant “beneficiary” of Ethereum’s long-awaited transition from proof of work (PoW) to proof of stake (PoW). Based on $2K ethereum prices and 5% ethereum returns, Worthington explained that The Merge could boost Coinbase’s annual revenue by $80 to $100 million from staking services.
As Financial Giant’s Market Strategists Focus On The Merger, JPMorgan Analyst Says Staking Revenue Could Boost Coinbase
In 29 days, the Ethereum network is expected to implement The Merge on or around September 15, 2022. It will be a very big deal for the chain, which has operated as a PoW blockchain for seven years. That’s because the network will fully transition to a PoS distributed ledger system. Four days ago, Bitcoin.com News reported on JPMorgan (NYSE: JPM), strategists saying Ethereum Classic (ETC) could benefit from The Merger, as etherminists will be forced to mine another Ethash-based cryptocurrency.
This week, JPMorgan analyst Kenneth Worthington explained in a note to investors that the crypto exchange Coinbase Global (Nasdaq: MONEY) could be a “significant beneficiary” of The Merger. The investment bank’s analyst also noted that investment income could boost exchanges like FTX, Binance and Gemini as well.
“We see the revenue opportunity greater (proportionately) than the revenue opportunity given that we expect institutional clients to contribute significantly to [ether] investing income, but much less for institutional clients,” said Worthington. “The vast majority of the economy remains with retail,” added the JPMorgan analyst. To be a validator, 32 ether is required to stand alone, but some exchanges offer ethereum- staking services with negligible threshold requirements to earn from stacked assets.
JPMorgan’s Worthington Predicts The Merger Boosting Coinbase Revenue to $100 Million
At the time of writing, Coinbase is one of the largest ETH owners according to validators, according to the ETH Staking dashboard hosted on Dune Analytics. Of the 13,326,533 ether deposited into the Ethereum 2.0 contract, Coinbase commands 14.7% or 1,966,080. ETH. Crypto firms such as Kraken, Binance, Bitcoin Suisse and Bitstamp also have significant staking positions, but Coinbase and the liquid staking service Lido have the largest. JPMorgan’s Worthington expects Coinbase to benefit significantly from the staking rewards.
“We estimate Coinbase incremental annual investment income from the Ethereum Merge at $650 million based on $2,000. [ether] and 5% [ethereum] to yield we see [an] incremental annual revenue of $80-$100 million in investment income,” detailed Worthington’s note.
Year to date, COIN is down 65.04% from a $357 per share high this year, but the current $85.44 is up from the $47 share price low seen on June 30th. In addition, on August 16, Coinbase summarized in blog post what customers “need to know” about the upcoming PoW to PoS transition. During The Merger, Coinbase will “briefly” pause ethereum transactions and it will not process withdrawals and deposits during the change. Coinbase’s break rule continues to apply to ERC20-based tokens built on the Ethereum network.
On August 14, Coinbase and a number of exchanges were asked: “If regulators ask you to censor at the ethereum protocol level with your validators will you: (A) Monitor and censor at [the] protocol level (B) Disable the stack service and maintain network integrity.” Coinbase co-founder and CEO Brian Armstrong answered the question on Twitter three days later, on August 17.
“It’s a hypothetical that hopefully we won’t face,” Armstrong wrote Thursday. “But if we did, we’d go with (B), I think. Must focus on the bigger picture. There may be some better option (C) or a legal challenge as well that could help achieve a better result.”
What do you think of JPMorgan analyst Kenneth Worthington’s comment? Let us know what you think about this topic in the comments section below.
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