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Coinbase aims at US$3 trillion crypto derivatives market, offering Bitcoin futures


Coinbase offers nano Bitcoin futures in a play to revive growth. Is that enough to reverse an 81% stock-price slump this year?

Coinbase (COIN) has seen its trading volume dwindle as crypto prices plummet, and its stock is down 81% this year.

To cushion the blow, the company's derivatives exchange launched a nano Bitcoin futures (BIT) contract yesterday, to take advantage of what it says is a US$3 trillion market for crypto derivatives.

"We believe that additional product development and accessibility will unlock significant growth," the company said in a blog post.

However, it seems unlikely to do enough to turn Coinbase's stock around. Here's why.

What derivatives offer investors

Mounting fear of a US recession is driving demand for instruments that would help shield investors from losses as markets languish in a bear market. That has fueled a race among companies to provide customers with derivatives to meet that demand.

The futures contracts allow investors to place bearish or bullish wagers, providing investors an avenue to make a profit amid a crypto winter, a long period of price stagnation when Bitcoin (BTC) and its peers languish in a bear market. Each contract is 1/100th of a bitcoin, requiring less upfront capital than traditional futures products and potentially allowing more everyday investors to play.

Trying to get a handle on the markets? Cut through the noise with our overview of the best cryptos to buy right now, explore some strategies for how to trade crypto or see if there's a better platform for you with our guide to the best crypto exchanges.

Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

Of course, like most wagers, you're not guaranteed to make money. If you position your bets wrong, you could end up losing your money. To learn more, see our dedicated guide on bitcoin futures trading here.

"Derivative activity in the US is tiny, but remains a key focus for multiple new entrants here including FTX, Coinbase and CBOE," according to a JPMorgan Chase & Co. analyst note on June 6.

Is this enough to reverse the slump in Coinbase shares this year?

Probably not, if you're basing your opinion on the price target set by analysts from Goldman Sachs Group Inc. and JPMorgan Chase & Co.

On Monday, Goldman downgraded the stock to sell from neutral, citing increasing odds that revenue declines will accelerate in the second half of the year, according to a Barrons report. The investment bank cut the price target to US$45, from US$70, signaling more downside for the stock that traded US$49.12 as of 2:21 pm in New York.

JPMorgan has been slashing its price targets on Coinbase shares, even as the company takes steps to improve its financial prospects including reducing its workforce.

"The meaningful depreciation of cryptocurrency prices will make it much harder for Coinbase to return to profitability," JPMorgan analysts said on June 16, when they lowered the price target for the stock to US$61, from US$68.

The company is also facing increased competition from rivals. While preliminary data suggests that Coinbase volume recovered in May, the rebound wasn't as strong as its peers', according to a JPMorgan analyst note on June 6. Coinbase was overtaken by FTX in terms of trading activity levels and market share last month, it said.

Coinbase's monthly average users also fell to 3.12 million in May, from 3.63 million in the first quarter, the bank said.

Is the gloomy outlook on Coinbase shared by all analysts who cover the stock?

No, 14 out of 26 analysts who track the company still think Coinbase is a "buy." Another two are even recommending that investors allocate more funds to the stock than the weighting prescribed by indexes. Seven say investors should hold on to their shares, while three say sell, according to data published on Wall Street Journal website.

Goldman is the most bearish of them. But on average, the analysts who track the stock, predict prices could climb back to US$123.43. While that's about one-third of the price during its trading debut, it still represents a 250% jump from Wednesday's price.

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At the time of publication, Luzi Ann Javier owns Coinbase shares.

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs comes with a higher risk of losing money rapidly due to leverage. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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