By Sam Boughedda
Oppenheimer analyst Owen Lau said in a research note Thursday that the crypto market is in a crisis but warned investors shouldn't lose sight of the potential Coinbase (NASDAQ:COIN) short squeeze.
The recent turmoil in the crypto market appears to be getting worse, stated Lau, pointing to the collapse of Terra/Luna, the Celsius Network pausing client withdrawals, Three Arrows looking for restructuring and a bailout, Babel Finance suspending redemptions and withdrawals, and Voyager having substantial loan exposure to Three Arrows.
"All this tells us that we are probably not just in a crypto winter but in a crypto crisis. The downward spiral and the fallout from key crypto players are likely to create more strain and contagious risk. With the Fed's tightening policy, total market cap of crypto declined by ~55% for 2022's second quarter, and trading volume subsided," wrote the analyst.
Lau stated that Coinbase is going into one of its most challenging prints as a public company.
"The weak trading volume leads us lower our 2Q revenue forecast for COIN to $779M, which is 12% below the Street's view. We expect rising rates to continue to put pressure on trading volume; therefore, we also lower 2022-23 revenue forecasts from $5.2B and $6.2B, to $3.8B and $4.5B, respectively," he added.
Lau has an Outperform rating on Coinbase shares but reduced the firm's price target from $197 to $90.
He stated the firm's analysis shows that "COIN tends to rebound more (i.e., 6x the BTC movement) than BTC and the broader market when there has been loosening news from the Fed."
"High short interest (12.3%) could fuel a squeeze when the tides turn."