JPMorgan Expects ETH 2.0 to be Great for Coinbase
The number one crypto exchange in America could benefit from the upcoming Ethereum merge if a note to investors from JPMorgan is to be believed.
On Wednesday, JPMorgan analyst Kenneth Worthington said in a note to investors that the San Francisco-based exchange’s staking service for institutions and Ethereum holdings would help it financially.
Through this crypto winter, Coinbase’s financials haven't been the best, as earlier this month, the company posted a $1.1 billion net loss for the past finical quarter, with the trading volume falling 29%.
Though the upcoming move to ETH 2.0 could help the company, the New York-based investment bank said. “We see Coinbase as a meaningful beneficiary of the Ethereum Merge,” the JPMorgan note read. “Coinbase is bigger in Ethereum than was intuitive to us, thus leading directly to a bigger revenue opportunity.”
“We believe that Coinbase has taken a series of steps to maximize the Ethereum staking revenue opportunity.”
Ethereum, the second largest cryptocurrency by market cap, is moving away from its old method of creating tokens, which it calls “the merge.” This will force the consensus mechanism to proof of stake.
Popular coins like Bitcoin are Proof of Work, meaning they’re generated by using machines competing to solve complex problems to “mine” coins and digital assets. Proof of Stake works differently by choosing from a pool of people holding the Proof of Stake coin. A Proof of stake “Validator Node” can be added to the pool by staking coins for a certain period, giving Proof of Stake “Validators” a source of income without needing powerful mining hardware. It's also referred to as a consensus mechanism that rewards users for validating on the blockchain.
Coinbase currently holds a significant amount of Ethereum on its balance sheet, making up about 15%; JPMorgan states that this will give the corporation a competitive advantage over its competitors.
The exchange recently began offering staking for institutional clients this month, with its CEO, Brian Armstrong, saying he expected this to benefit the business.
In the note, JPMorgan further estimated that Coinbase could generate an annual staking revenue of $650 million from Ethereum’s “merge,” with Ethereum trading at $2,000 and a 5% yield.
Ethereum is trading at $1,699.79, with a loss of 9.27% in the past 24 hours. The next couple of months are being targeted as the date for the Ethereum merger, which will see the number two cryptocurrency in the world move from a proof-of-work algorithm to a proof-of-stake model. Coinbase is emphasizing staking as part of its business model with this in mind.