JPMorgan analyst Kenneth Worthington says digital currency exchanges like Coinbase will end up being a meaningful “beneficiary” of Ethereum’s long-awaited transition from proof-of-work (PoW) to proof-of-stake (PoW). Based on $2K ethereum prices and a 5% ethereum yield, Worthington explained that The Merge could boost Coinbase’s annual income by $80 to $100 million from staking services.
As Financial Giant’s Market Strategists Focus on Mergers, JPMorgan Analyst Says Staking Revenue Could Strengthen Coinbase
In 29 days, the Ethereum network is expected to implement The Merge on or around September 15, 2022. This would be a huge deal for a chain that has operated as a PoW blockchain for seven years. This is because the network will switch to a fully PoS distributed ledger system. Four days ago, as Bitcoin.com News reported on JPMorgan (NYSE:JPM), strategists said that Ethereum Classic (ETC) could benefit from The Merge, as ether miners were able to mine another Ethash-based cryptocurrency. will be forced to do.
This week, JPMorgan analyst Kenneth Worthington explained in a note to investors that the crypto exchange Coinbase Global (Nasdaq: COIN) could be a “meaningful beneficiary” of The Merge. The investment bank’s analyst also noted that staking revenue could bolster exchanges like FTX, Binance, and Gemini as well.
“While we see that the revenue opportunity is (proportionately) larger than the income opportunity, we expect clients with institutional stakes to make meaningful contributions. [ether] Revenue, but little for institutional clients,” said Worthington. The JP Morgan analyst said, “The majority of the economics rests with retail.” Being a validator requires 32 ether to bet on its own However, many exchanges offer Ethereum staking services with negligible limit requirements to earn from the assets at stake.
JPMorgan’s Worthington Foresees The Merge Boosting Coinbase Revenue up to $100 Million
At the time of writing, Coinbase is one of the largest ETH holders in terms of validators, according to the ETH Staking dashboard hosted on Dune Analytics. Out of the 13,326,533 ether deposited into the Ethereum 2.0 contract, Coinbase commands 14.7% or 1,966,080 ETH. Crypto firms like 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 staking revenue from the $650 million Ethereum merge based on $2,000” [ether] and 5% [ethereum] yield. We see [an] $80-$100 million incremental annual income,” detailed in Worthington’s note.
Year-to-date, COIN is down 65.04% with a $357 per share high this year, but the current $85.44 is up from the $47 low share prices saw on June 30. Furthermore, on August 16, Coinbase summarized in a blog post what customers “need to know” about the upcoming PoW to PoS transition. During The Merge, Coinbase will “briefly” pause ethereum transactions and it will not process withdrawals and deposits during the change. The Coinbase pause rule further applies to ERC20-based tokens built on top of the Ethereum network.
On August 14th, Coinbase and several exchanges were Asked: “If regulators ask you to censor ethereum At the protocol level with your validators you will: (a) comply and censor [the] Discontinue protocol level (b) staking service and maintain network integrity.” Co-founder and CEO of Coinbase Brian Armstrong Three days later, on August 17, he answered this question on Twitter.
“It’s a hypothetical we hopefully won’t actually face,” Armstrong wrote on Thursday. “But if we did we’d go with (B), I think. Got to focus on the bigger picture. There may be some better option (C) or a legal challenge as well that could help reach a better outcome.”
