Barclays Upgrades Coinbase and Robinhood Amid Positive Market Trends

Barclays Upgrades Coinbase and Robinhood Amidst Positive Market Developments

In a notable shift in perspective, British banking giant Barclays has upgraded its ratings for both Coinbase (COIN) and Robinhood (HOOD) from underweight to equal weight. This change is attributed to the companies’ improved business models and enhanced operational resilience in the evolving financial landscape.

On Friday, after the announcement was made overnight, shares of both companies experienced a brief uptick but later fell by more than 3%, coinciding with a decline in Bitcoin (BTC) and the broader crypto market index, CoinDesk 20. Barclays analyst Benjamin Budish highlighted that both companies have “matured meaningfully,” especially in light of their product diversification and a more optimistic financial outlook.

Specifically, Coinbase stands to benefit from a more favorable regulatory climate, particularly as both major presidential candidates have adopted a more supportive approach towards the digital asset sector. The anticipated approval of several spot crypto exchange-traded funds (ETFs) further bolsters this outlook, according to Barclays’ analysis. Budish noted, “While we continue to see risks for Coinbase, we believe that the improving environment, enhanced profit and loss profiles, gradual diversification, and clear industry leadership in the U.S., along with recent stock performance, indicate a more balanced risk/reward scenario. Therefore, we are moving to an Equal Weight rating.”

The cryptocurrency sector has faced significant challenges since the dramatic collapses of FTX and several other major players in 2022 and 2023. Nevertheless, Coinbase has demonstrated remarkable resilience. The report commends the company for its prudent cost management, particularly regarding workforce expenses, even as user activity has surged in 2024. Budish remarked, “Management has exercised discipline in hiring, resulting in a much more modest growth in costs compared to previous years, which has allowed the business model to enjoy increased margins from this leverage.”

Furthermore, the report underscores Coinbase’s growing range of revenue streams. Although the exchange predominantly relies on trading fees and interest income, it is increasingly seeing other business areas contribute significantly to its financial performance. These include blockchain rewards, custody revenues, and various transaction fees, according to Barclays.

However, analysts caution that despite the positive trends, uncertainties remain in the cryptocurrency space. Factors such as the broader macroeconomic environment and ongoing regulatory ambiguities regarding the classification of several assets as securities, along with the unresolved lawsuit by the Securities and Exchange Commission (SEC) against Coinbase, continue to pose risks.

Similar Optimism Surrounding Robinhood

Barclays analysts also perceive encouraging developments in Robinhood’s business model that could yield future gains. The primary catalysts for this optimistic outlook include:

• The introduction of innovative new products
• The company’s expansion into the UK and European markets
• The potential influx of new customers following the planned acquisition of Bitstamp

Barclays stated, “The factors that initially prompted our Underweight ratings are increasingly reversing, leading us to view the risk/reward scenarios for both stocks as more balanced.”