Coinbase Set to Gain as ETH Reaches New Heights

According to analysts from Bernstein, Coinbase is poised to be the main beneficiary of rising ETH prices as the alt season officially begins. They regard Coinbase as one of the leading public companies aligned with Ethereum. Since June 5, when Circle, a stablecoin issuer, went public, ETH has surged 80%. This increase can be attributed to heightened investor interest in the Ethereum network, especially as stablecoins are primarily based on it. On Friday, ETH reached $4,000 for the first time in eight months and traded above $4,350 on Monday, before undergoing a slight correction. Currently, ETH is priced at $4,186, down about 14% from its peak of approximately $4,878 in November 2021. Chhugani referred to this market phase as an 'alt rally,' describing a situation where digital assets other than Bitcoin experience greater gains. He believes that Coinbase will benefit the most from this rally, particularly given its extensive selection of over 250 tokens, along with its recent integration of Base chain tokens within the Coinbase App. Base chain processes over 9 million daily transactions across various applications, with gas fees paid in ETH, contributing about $75 million in annual sequencer fees to Coinbase. Additionally, Coinbase profits from brokerage fees through its platform that supports transactions involving Base chain tokens. After Coinbase's shares fell by 15% following the release of their Q2 earnings last month, Bernstein analysts advised investors against overreacting, claiming that 'Q2 is the quarter that doesn't matter' for the exchange. They noted the crypto market only started its recovery in July, and Coinbase's trading volume has since increased by approximately 40% compared to the Q2 average. Chhugani stated that an increase in ETH and related ecosystem tokens leads to a substantial rise in trading volumes and fees for Coinbase. Therefore, he anticipates strong trading volumes in Q3 and Q4, likely boosting analyst estimates. With ETH staking accounting for 10% of Coinbase's revenue, a rise in asset prices will further enhance this revenue stream. The analysts also pointed out that Coinbase holds a significant ETH reserve of 136,782 ETH, valued at around $570 million. The report also highlights other public companies leveraging ETH for potential investment opportunities. Bernstein expects Robinhood's crypto trading volumes to increase in Q3 as the platform expands to over 30 tokens, includes Ethereum staking, and launches Robinhood Chain, a Layer 2 ecosystem for tokenization. Circle is noted for minting USDC primarily within the Ethereum ecosystem, with around 60% of its supply on Ethereum and about 10% on Layer 2 chains like Base and Arbitrum. Over the last three months, USDC's supply has increased by 7% to over $65 billion, propelled by Ethereum's growth and the demand for USDC in smart contracts. Furthermore, spot Ethereum exchange-traded funds (ETFs) offer another investment avenue for those wishing to gain exposure by holding ETH directly. BlackRock's proposal to incorporate a staking feature in its iShares Ethereum Trust could yield around 2.9% in ETH by validating transactions, extending blockchain economics into the ETF realm. Finally, the emergence of Ethereum treasury companies that actively accumulate ETH presents another investment opportunity. These companies utilize moderate leverage, manage balance sheet risks, and deploy ETH into staking and on-chain finance to generate additional income. Unlike ETFs, they adjust strategies based on market conditions, highlighting the importance of selecting the right manager to navigate potential risks. Bernstein analysts opine that the crypto bull cycle is 'still early,' with many of these investment prospects well-positioned to capitalize on increased volumes and wider adoption.