As bitcoin, ethereum and other cryptocurrencies get increasing attention from investors, Wall Street and its traditional banks continue to adjust to the shift. Catch up on this week's top stories highlighting the intersection of these old guard and new school areas of finance with this recap compiled by The Fly.
FIDELITY, SCHWAB, CITADEL TO LAUNCH CRYPTO EXCHANGE: A consortium broker-dealers, global market makers and venture capital firms announced Tuesday the launch of EDX Markets, an exchange that will address latent demand for digital asset trading by enabling safe and compliant trading of digital assets through trusted intermediaries. The companies said, “The new exchange will combine proven technology provided by MEMX with best practices from traditional financial markets and tighter spreads enabled by greater liquidity, to support secure, fast and efficient cryptocurrency trading for U.S. retail and institutional investors. EDXM will enable a highly liquid cryptocurrency ecosystem that aggregates liquidity from multiple market makers to reduce spreads and improve transparency. This commitment to price discovery and efficiency is expected to result in better prices for investors than those offered by existing cryptocurrency exchanges.” EDXM operates as a fully independent entity backed by financial industry companies including Charles Schwab (SCHW), Citadel Securities, Fidelity Digital Assets, Paradigm, Sequoia Capital and Virtu Financial (VIRT). Additional market participants are expected to partner with EDXM over time.
COINBASE PRICE TARGET RAISE: JPMorgan analyst Kenneth Worthington raised the firm's price target on Coinbase (COIN) to $78 from $64 on Wednesday and kept a Neutral rating on the shares. The analyst estimates Coinbase has a "substantial revenue opportunity" that originates from higher interest rates, based on a one-month Treasury yield getting to 3.75% by the end of 2022. The Coinbase revenue opportunity is more substantial than other financial institutions reflecting "some unique investments and idiosyncrasies with crypto accounts," Worthington said. He expects Coinbase could keep nearly all interest income, unlike financial peers that pass on some interest income to clients. Worthington sees the biggest opportunity in higher interest rates for Coinbase stemming from its 50/50 joint venture with Circle in the Centre Consortium which oversees U.S. dollar coin stablecoin. He estimates this as a $700M opportunity as part of a $1.2B interest income revenue opportunity for Coinbase in 2023.
Meanwhile on Thursday, Edwin Dorsey, in his "The Bear Cave" blog, highlighted what he sees as "problems" at Coinbase, stating in part: "Intense competition, a busted business model, and failing leadership tether the company to a downward trajectory... For example, investors looking to trade cryptocurrencies can do so on Robinhood, Square, PayPal, Gemini, SoFi, WeBull, eToro, Binance, Public.com, Crypto.com, and FTX, among others... One of the best-funded competitors, FTX, has also set its sights on Coinbase."
Additionally on Thursday, Broadridge (BR) announced a partnership with Coinbase, offering interoperability between Coinbase Prime and Broadridge Trading and Connectivity Solutions' NYFIX order-routing network. This solution allows NYFIX clients to route order flow to Coinbase Prime via the FIX protocol. It also allows buy-side traders to source crypto liquidity from Coinbase and trade right from their OMS. The solution is now offered to U.S. domestic clients and will roll out to additional regions as regulations allow.
RIOT REMAINS A TOP BITCOIN MINER PICK: Roth Capital analyst Darren Aftahi noted Monday that with the latest ramp in machine deployment velocity, Riot Blockchain's (RIOT) hashrate grew about 14.3% month-over-month in August, outpacing that of the BTC network with 5.3% month-over-month growth. Whinstone infrastructure development seems to be nearing completion, with one immersion building at full capacity, leaving just under 300 MW of available capacity, Aftahi added. The analyst believes Riot remains a top pick among BTC miners as well as within his coverage given its prudent approach to cash management and strong balance sheet, despite recent BTC market weakness. He has a Buy rating and a price target of $15 on the shares.
MARATHON PRICE TARGET LOWERED: DA Davidson analyst Christopher Brendler lowered the firm's price target on Marathon Digital (MARA) on Thursday to $22 from $30 but kept a Buy rating on the shares. Bitcoin miners are being pressured by higher interest rates, falling BTC prices, spiking power costs, and rising network competition, the analyst said. Brendler added however that Marathon Digital shares' risk/reward is attractive at these levels, and he remains positive on the company's growth acceleration and "impressive" liquidity position.
GALAXY INITIATED WITH BUY: Benchmark analyst Michael Legg initiated coverage of Galaxy Digital Holdings (BRPHF) on Tuesday with a Buy rating and $11 price target. Galaxy, which is developing a diversified digital asset-based investment bank focused on Institutional investors, aims to be the "Goldman Sachs" of digital assets and is "positioned at the forefront of the rapidly emerging digital asset industry," Legg said. He expects the industry to grow at 20% annually, though it "may not be linear," and argued that Galaxy's first mover advantage and formal relationships with 845 institutional counterparties give it a competitive advantage over both new and traditional competition.
CRYPTO STOCK PLAYS: Cryptocurrency revenues have been pointed to as reasons to be bullish on Advanced Micro Devices (AMD) and Nvidia (NVDA) in select research. Ideanomics (IDEX), Riot Blockchain, Overstock (OSTK), Pareteum (TEUM) and SRAX (SRAX) are other stocks that have been touted, or promoted themselves, as a way to play the crypto theme.
PRICE ACTION: As of time of writing, bitcoin dropped about 7% this week to $19,660 in U.S. dollars, according to TradeBlock.