Digital Assets: Ethereum Merge Could Boost CoinBase’s Bottom Line By $80 – $100M (JPMorgan)

August 19, 2022 | Digital Assets, News
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The Ethereum Merge is slated for September 16, and the event is said to be a hugely historical moment for cryptocurrencies.

Coinbase (NASDAQ: COIN) is likely to benefit substantially from the Ethereum Merge, according to JPMorgan analyst Kenneth B Worthington.

In a note to clients, Worthington estimated that Coinbase likely accounted for a 15% share of Ethereum assets, and that recent steps it took “to maximize the value of Eth staking for its clients” would help to bolster its own revenues. (StreetInsider)

Ethereum Merge

The ethereum merge is said to be a seminal event for cryptocurrencies and likely to take place around September 15.

It is a long-pending upgrade to the ethereum blockchain network that would reduce its electricity requirements by over 99%.

In the Merge, ethereum will adopt a system known as proof of stake (PoS), in place of a highly energy intensive system known as proof of work (PoW) that involved highly complex mathematical crypo puzzles.

In proof of stake, these puzzles will no longer be required, hence slashing computational resources and the energy used to run them.

On Merge day, the data held on ethereum’s mainnet would be transferred to the proof of stake beacon chain, which will then become the prime blockchain on ethereum’s network.

Coinbase and PoS

“We see the staking revenue opportunity bigger (proportionally) than the income opportunity given we expect Institutional staking clients will contribute meaningfully to Eth staking revenue, but much less so for Institutional customers. The vast majority of the economics remains with retail,” Worthington said in a client note.

“We estimate Coinbase incremental annual staking revenue from the Ethereum merge of $650 million based on $2,000 Eth and a 5% Eth yield. We see incremental annual income of $80-$100mn of staking income,” Worthington added.

JPMorgan has a neutral rating and $64 price target on Coinbase shares.

Coinbase is currently trading at $74.61, and down 10.61% for the day. Year-to-date, shares have lost over 70%.

Related Story: Coinbase In Hot Water As The SEC Probes Trading Of Tokens That Should Have Been Registered As Securities

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